Journal of Regional Socio-Economic Issues, Volume 5, Issue...
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1 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 2
JOURNAL OF REGIONAL SOCIO-
ECONOMIC ISSUES (JRSEI)
Journal of Regional & Socio-Economic Issues (Print) ISSN 2049-1395
Journal of Regional & Socio-Economic Issues (Online) ISSN 2049-1409
Indexed by Copernicus Index, DOAJ (Director of Open Access Journal), EBSCO, Cabell’s Index
The journal is catalogued in the following catalogues: ROAD: Directory of Open Access Scholarly
Resources, OCLC WorldCat, EconBiz - ECONIS, CITEFACTOR, OpenAccess
3 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
JOURNAL OF REGIONAL
SOCIO-ECONOMIC ISSUES (JRSEI)
ISSN No. 2049-1409
Aims of the Journal: Journal of Regional Socio-Economic Issues (JRSEI) is an international
multidisciplinary refereed journal the purpose of which is to present papers manuscripts linked
to all aspects of regional socio-economic and business and related issues. The views expressed
in this journal are the personal views of the authors and do not necessarily reflect the views of
JRSEI journal. The journal invites contributions from both academic and industry scholars.
Electronic submissions are highly encouraged (mail to: [email protected]).
Chief-Editor Prof. Dr. George M. Korres: Professor University of the Aegean, School of Social
Sciences, Department of Geography, [email protected]
Editorial Board (alphabetical order) Assoc. Prof. Dr. Zacharoula S. Andreopoulou, Aristotle University of
Thessaloniki, Faculty of Forestry and Natural Environment, School of
Agriculture, Forestry & Natural Environment, Email: [email protected]
Assoc. Prof. Dr. Maria Athina Artavani, Department of Military Science,
Hellenic Military Academy, Greece, [email protected]
Prof. Dr. Elias G. Carayannis: Professor School of Business, George Washington
University, USA, [email protected]; [email protected]
Prof. Dr. Christos Frangos, Professor of Statistics and Business Methods, Technological
Institute of Athens, [email protected]
Prof. Dr. George Halkos, Professor Department of Economics, University of Thessaly, [email protected]
Prof. Dr. Hanna Dudek: Professor Warsaw University of Life Sciences, [email protected]
Prof. Dr. Richard Harris: Professor Durham University, [email protected]
Assoc. Prof. Dr. George Gkantzias: Associate Professor in Cultural Management, New
Technology University of the Aegean, [email protected]
Ass. Prof. Dr. Marina-Selini Katsaiti, Assistant Professor Department of Economics &
Finance, College of Business & Economics, United Arab Emirates University, UAE,
Prof. Dr. Christos Kitsos, Technological Institute of Athens, [email protected]
Dr. Dr. Aikaterini Kokkinou, University of the Aegean, Department of Geography,
Greece, [email protected]
Prof. Dr. Elias A. Kourliouros, Professor Department of Geography, University of the
Aegean, [email protected]; [email protected]
Ass. Prof. Dr. Christos Ladias, Assistant Professor, Panteion University, Greece
Prof. Dr. Dimitrios Lagos, Professor Department of Business Administration, University
of the Aegean, [email protected]
Assoc. Prof. Dr. Charalambos Louca: Associate Professor & Head of Business
Department, Director of Research Department, [email protected]
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 4
Prof. Dr. Emmanuel Marmaras: Professor Technical University of Crete,
[email protected]; [email protected]
Prof. Dr. Ioannis Th. Mazis, National and Kapodistrian University of Athens,
Faculty of Turkish Studies and Modern Asian Studies,
School of Economics and Political Sciences, [email protected];
Assoc. Prof. Dr. Maria Michailidis: Associate Professor & Dean, Department of
Management & MIS, University of Nicosia, [email protected]
Prof. Dr. Photis Nanopoulos, Former Director of Eurostat, [email protected]
Dr. Pablo Ruiz-Nápoles, Faculty of Economics, Universidad Nacional Autonoma de
Mexico, [email protected]
Assistant Professor Dr. Efstratios Papanis, Department of Sociology, University of the
Aegean, [email protected]
Prof. Dr. George Polychronopoulos, Professor and Dean School of Economics and
Business, Technological Institute of Athens, [email protected]
Prof. Dr. Kiran Prasad, Professor Sri Padmavati Mahila University
[email protected]; [email protected];
Associate Professor Dr. Anastasia Stratigea, National Technical University of Athens,
School of Rural and Surveying Engineering, Department of Geography and Regional
Planning, [email protected]
Prof. Paris Tsartas, Professor, University of the Aegean, [email protected]
Prof. Dr. George O. Tsobanoglou, Prof. University of the Aegean, Department of
Sociology, [email protected]
Prof. Dr. George Zestos, Christopher Newport University, [email protected]
5 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Table of Contents
Editorial Board 3
Table of Contents
5
Paper 1: The Process of Privatization and Employee Morale (by Maria P.
Michailidis and Stamatia Efstathiou)
6
Paper 2: Who are the entrepreneurs that adopt sustainable tourism practices?
(by Sardianou, E., Kostakis I., Mitoula, R., Gkaragkani, V. Lalioti, E and E.
Theodoropoulou)
25
Paper 3: Financial Risk Assessment of Albanian SMEs with the help of
Financial Ratio ( A case study– SME-s in Gjirokasra region) (by Lorenc
Koçiu, Romeo Mano and Armand Hysi)
38
Paper 4: A Note in the Logistics, Transportation and Competitiveness (by
Dr. Dr. Aikaterini Kokkinou)
52
Paper 5: Investing in Emotional Economics (by Vaibhav P. Birwatkar)
62
Book Review
78
Call for Papers
80
Instructions to Authors 81
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 6
The Process of Privatization and Employee Morale
Abstract:
The current paper discusses findings from an exploratory study aimed at identifying an
Organization’s imminent privatization impact on the employees’ morale. Qualitative and
quantitative research was conducted. A sample of 253 employees voluntarily participated in e-
survey, and 16 participants were interviewed. Variables such as: pride, job security,
psychological well-being, motivation for work, effects on employees’ personal lives,
resistance and absenteeism, were used.
Overall, employee morale was shown to have deteriorated, based on the study’s variables
(except for absenteeism rates). The results supported the hypothesis that as employees’ job-
security is threatened with the imminent privatization, increased levels of anxiety, stress,
insecurity, and consequently decreased levels of employee morale would be identified. This
expected negative impact was identified to affect employees’ motivation towards work itself.
Furthermore, the negative impact on their morale, showed to have an adverse influence on
employees’ personal lives and on their plans for the future.
Keywords: Employee morale, Privatization, Human aspect of change,
Psychological well-being, Job Security, Motivation, Pride
Maria P. Michailidis1 & Stamatia Efstathiou2
1 Dr. Maria P. Michailidis, Dean of the School of Business at the University of Nicosia, Cyprus and a member of
the Department of Management and MIS. E-mail: [email protected] 2 Stamatia Efstathiou is a graduate from the Mediterrenean Institute of Management (MIM), with a Postgraduate
Diploma in Management Studies.E-mail: [email protected]
7 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
1. Introduction
1.1 Employee Morale
It has been established that employee morale consists of their attitudes and emotions
(Manning and Curtis, 1988) and, that in general according to the Business Dictionary, their
global viewpoint of their work environment; is considered as directly related with
productivity in an organisation.
According to Manning and Curtis (1988, p. 3), morale is
“the moral or mental condition of a person or group with respect to courage,
discipline and willingness to endure hardship; a state of confidence, cheerfulness and
enthusiasm, a positive attitude by an individual or group as shown by a willingness to
perform tasks.”
Furthermore, Manson (2000, p. 10), associates staff morale with the employees’
“level of psychological well-being”, supporting that the workplace plays a significant role on
the psychological well-being of its employees.
Yet, certain signs or symptoms, as Manning and Curtis (1988) , point out, such as high
rate of turnover, high rates of absenteeism, a great number of grievances, lack of loyalty on
the part of employees, poor work habits, loss of materials, tools and equipment, lack of pride
and even resistance (strikes), indicate low employee morale. To measure staff morale, these
symptoms need to be considered and evaluated. However, some symptoms can be observed
or evaluated easier than others while some may not be available to the researcher for
measuring and assessing, because of their highly confidential nature. Also, certain symptoms
may well occur as a result of other external factors, hard to trace and likely to require
longitudinal studies.
Furthermore, Manning and Curtis (1988), also suggest that work affects almost every
side of human life, including economic well-being, social personality and psychological
health. Doing something of value in life is a strong motivation, frequently expressed in work.
Work itself is an important “source of meaning and identity in our society”, according to these
authors. Thus, through their profession, people build up an identity and feel they contribute to
society.
Morale, along with skill, are the two key-factors for job performance, irrespective of
the work’s nature or level of responsibility that an employee may have. Additionally, staff
morale is what encourages employees to work with enthusiasm and zest and to give their best
in their work, thus achieving job satisfaction and a good quality of work-life. In the ever-
changing, competitive environment characterising the macro-environment, morale is very
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 8
important for an organisation’s very survival and success. Consequently, it is essential to
keep staff morale high at all times. Staff morale, motivation and job satisfaction are related
terms and may be influenced by various factors, both external and internal.
Nonetheless, Nelson and Cooper, (1995) state that, the impact from negative or
dramatic changes in the workplace on each employee’s staff morale, differs according to their
character-type and how they perceive external factors to affect their psychological well-being.
As Newton and Keenan (1990) suggest, cited by Nelson and Cooper (1995), employees with
“Type A” behaviour and internal locus of control, restrain the influence of increased job
demands on psychological anxiety, as compared to “Type B” ’s. Furthermore, as
Greenberger, Strasser, Cummings & Dunham (1989) suggest, cited by Nelson and Cooper
(1995), when employees perceive they can actually control the situation in their work-
environment, this results to job satisfaction and enhanced performance.
Considering Herzberg’s two-factor theory, (Herberg, (1959), as cited in
http://www.businessballs.com/herzberg.htm), certain motivators such as challenging work,
responsibility and recognition provide positive satisfaction, while hygiene factors such as job
security, status, salary etc., when threatened, result in employees’ demotivation. And
demotivation is a part of low staff morale.
1.2 Privatisation
Another issue which needed to be considered, since the purpose of this study was to examine
how the imminent privatisation affects staff morale in the Organization under study, was the
term “privatisation”. Privatisation refers to the transfer of ownership, from the government to
the private sector. Privatising an organisation can entail potential advantages and
disadvantages. Some of the disadvantages include possible deterioration of caring for the
public interest. Another disadvantage is that with privatisation, the Government loses out on
dividends. There is also the issue of regulating the private monopolies which are usually
created, as the need will continue to exist for government regulation, to avoid manipulation of
monopoly power. Furthermore, a natural monopoly can occur when an organisation has
significant fixed costs, in which case, privatising it would simply produce a private monopoly,
aiming to increase prices and exploit consumers. Another disadvantage is short-termism of
Companies, with private owners seeking to generate short-term profits and avoiding to
finance long-term projects. A typical example of this is the UK, suffering today from an
absence of investment in new energy sources, because privatised firms are looking out to
utilising existing plants rather than capitalising in new ones.
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Often, privatisations are accompanied by downsizing. Yet, the immediate costs-
savings linked with downsizing in Organizations, can soon vanish within a year or two, as
was the case with 281 hospitals, according to Abrahamson (2004), were the immediate costs-
savings related with downsizing, disappeared in one to one and a half years’ time. Besides,
according to Manson (2000), psychological matters are often overlooked by management
during downsizing, as their focus is on realising it successfully through layoffs or alternative
to layoffs (i.e. voluntary retirement schemes, as is the case currently in the organisation under
study).
On the other hand, some potential advantages from privatisations include improved
efficiency, avoiding political interference in an organisation, possible short-term view of a
government, shareholders’ pressure to perform efficiently, and increased competition.
Finally, selling out a governmental organisation will raise income from the sale.
Nevertheless, bearing in mind actual implementations of privatisation around the
world, it seems that initial expectations for positive outcomes from privatising social services’
sectors in the 1990s and early 2000s, have not been satisfied, as Hall, Lobina & De la Motte
(2005) suggest. Assessing the outcome from privatisations in these sectors around the world,
whereas initially it was expected to replace traditional public-sector organisations in these
areas suffering from under-investment and incompetence because of too much political
interference and bureaucratic administration, the results were different. Actual cases include,
according to Nellis, 2003 (cited by Hall et al, 2005, p. 287), Sri Lanka, where according to
opinion polls, privatisation has been associated with deteriorating socio-economic conditions
such as more poverty, higher cost of living and so on, while in Russia, two-thirds of the
respondents in a survey conducted in 2001, said that “they had lost more than they gained
from privatisation”.
Another example is the privatisation of the social services sector in California, USA in
early 2000, the results of which were quite disappointing. After four years of efforts to
privatise the social services sector (starting from 1996), the outcome was unacceptable:
following privatisation in 2000, gross energy prices rose by 800% and by 240% for retail
consumers, causing intense social protests. Further, privatisation in the social services sector
there, brought about several blackouts.
In fact, as Hall et al (2005) confirm, privatisation has become so disliked by people
who regard it as aiding oligarchic national and foreign interests which profit at the expense of
the country, that governments have ended up establishing euphemisms, such as:
““capitalisation” (Bolivia), “ownership reform” (China), “disinvestment”
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 10
(India), “disincorporation” (Mexico), “peopleisation” (Sri Lanka) and
“equitisation” (Vietnam).”
As Buresch, (2003), suggests, cited by Hall et al (2005, p. 288), any gains from
privatisation are small, isolated and slow, while the influence of price hikes and job losses is
“concentrated, immediate, and falls on visible and local groups…”. Resistance to social
services privatisation around the globe has originated, as these authors state, from civil society
groups such as trade unions, community organisations, ecologists, consumer organisations
and political parties, and in some cases, generalised public protests took place, against high
prices and job losses.
Furthermore, Hall et al, (2005), state that resistance campaigns against privatisation in
the social services sector around the world have been carried out in countries with different
levels of national income, such as France, Germany, USA, Mexico, Africa, Thailand,
Hungary, Poland Ghana, Honduras and India.
Concluding, privatisation, according to Nelson et al. (1995, p. 69), is a possibly
stressful experience for all people involved, unless it is dealt with correctly.
1.3 The “human” aspect of change
An organization directed towards privatization entails major changes which can affect the
human factor to a great degree. Along with focusing on the changes which are required to
take place within the organization, management should also consider its people. As Carnall
(2007) suggests, while it is very important to detect the organizational issues involved which
need change, it is equally important to give consideration to the human factor, i.e. the
employees. Change generates risks, doubts and costs, both financial and psychological, and
as the author continues to state “…If we have no shared aims and no knowledge of what to do
next, there will be so much uncertainty that people will expect the “costs” of change to be
high.” (p. 211).
What any organisation’s management should consider at all times is that their
personnel are their most “precious asset”, as Abrahamson (2004) confirms. Thus, since a
major organisational change such as an imminent privatisation is expected to affect the
organisation’s employees, the management should be there to support its people throughout
the process.
11 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
2 Methodology
2.1 Research Strategy and Research Design
As stated earlier, major organisational changes such as an imminent privatisation, are likely to
bring about adverse effects on staff morale. The present study aimed to identify such effects
by their examination of the employees of a semi-governmental organization (called
Organization in this research), soon to be privatized, and to come up with suggestions for
improvement.
The research then proceeded with the use of a survey that was conducted using a
representative sample of the organization under study, to reach the first objective, this being:
(a) Identify whether, based on Herzberg’s hygiene factor theory mentioned earlier, as the
imminent privatization of the Organization’s approaches its implementation, increased levels
of anxiety, job insecurity, and consequently, decreased levels of morale occur among
members of staff in the Organization under review. Additionally, an examination was
conducted, which was the second objective (b) to identify whether this expected adverse
impact affects negatively, to some extent, employees’ motivation or mood towards work
itself.
Finally, another objective was to detect whether the negative impact on staff morale,
prompted by the imminent privatisation, results in a negative influence on many of the staff
members’ personal lives.
The hypothesis that was attempted to be supported here is that
Hypothesis 1: The upcoming privatization threatens employees’ job security, consequently,
levels of anxiety and stress are elevated, while morale is decreased.
2.2 Population and Sampling Method
The present study was composed of 253 participants; a representative sample of the
population under study.
For the survey, a purposive sample was used. The questionnaire was sent to all of the
Organisation’s employees who were computer-users (at work), these were 700 employees.
Out of them, 253 were returned completed, giving a response rate of 36%. For the
face to face interviews, a purposive sample of 16 employees was used.
Participation to both the e-survey and to the interviews was on a voluntary basis and
strict anonymity was kept regarding all respondents’ personal data and any views expressed.
Finally, an informed consent form was signed by each interviewee, prior to the
interview session.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 12
2.3. Research Techniques/Data Collection/ Data Analysis Method
Two questionnaires were constructed, in order to measure staff morale: One (Section A) for
the e-Survey, which was administered electronically through Google-Docs to 700 randomly
selected participants and (Section B) the structured interview which was conducted face-to-
face with sixteen members of staff.
Section A: The Quantitative research was used by the administration of an e-survey with
structured questionnaires (composed of questions which concerned demographic issues, such
as gender, age group, level of education and years of service, open-ended, close-ended
questions and Likert-type scale questions).
The questions were about their emotions and attitudes towards the imminent
privatization of their organization; i.e. about their current feelings towards work, pride, job
security, psychological well-being, motivation towards work itself, threatened job security,
psychological well-being, and effects on their personal lives. The issues of absenteeism
rates and resistance were also addressed in the course of the research.
An informative email with the specific link to the e-Survey was prepared and this was
administered through the Organization’s internal mail, following a written permission
provided to the researcher by the Organization’s management. Specifically, the email was
sent from the Organization’s HR Manager’s office.
All responses were submitted on a voluntary basis anonymously and were received
on-line through Google-Docs, where an automatic summary of results was prepared by the
system, once a representative sample had been gathered (253 responses). The results were
then extracted in excel, and were further analysed.
The questionnaire was pilot tested to 6 employees (selected randomly), prior to
administering it to the population concerned. On each questionnaire, it was clearly stated that
they were administered on a voluntary, anonymous and confidential basis.
Section B: The Qualitative research used 16 in-depth, interviews.
The individual interviews were conducted face-to-face in order to gain deeper insight on
employees’ perspective, views and feelings on the topic concerned. For comparison purposes,
the interviews were structured, guided by a specific questionnaire. Pilot testing with 6
subjects which were selected randomly, preceded the questionnaire’s administration. The
interviews were carried out in strict confidentiality and anonymity was kept for all the results
13 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
collected. Since the participants did not wish to be recorded, the interviews were transcribed
in typed form, during each meeting.
Also, the role of the media as well as the general public’s attitude towards the
Organization’s (under study) privatization plans and towards its employees, were examined,
since these were esteemed as playing a crucial role in employees’ deterioration of staff
morale. During the interviews, word-association technique was also introduced, in order to
detect how interviewees felt or unconsciously thought regarding certain issues concerning
privatisation. Three words were used for this purpose, privatisation, restructuring and
Troika.
2.4. Data Analysis Techniques
The data was analysed with the use of Excel. Specifically, the following statistical techniques
were employed: (a) Frequencies, (b) Descriptive.
2.5. Ethical Concerns/ Research Limitations
Ethical concerns are of main importance when research is conducted, due to the fact that the
human factor is involved. Thus, the researchers should maintain confidentiality and
anonymity. For this reason, every questionnaire explicitly stated that the research was on a
voluntary, anonymous and confidential basis. The researchers took all precautions in order to
preserve confidentiality and to protect any personal data of the participants. Finally, no
pressure was exerted on them to complete the questionnaire.
The limitations of this research were the ones inherent in questionnaires. Thus, the
employees may have had the tendency not to express their emotions about their organization
and their administrators due to respect/fear. This could have occurred basically during the
interviews, where subjects were confronted face-to-face with the researcher. Thus, during the
interview process, their strict anonymity was “uncovered” to some extent, solely to the
researcher, of course. Time constraints were also a limitation, as longitudinal research would
be more enlightening.
3 Results and Discussion
3.1 Frequencies
In total, 63% of the respondents were male, while the rest (37%) female. Their ages ranged
from 20 to 50 and above. 80% of the respondents reported to be married, 13% single, while
the rest divorced. Slightly more than half of the respondents (55%) reported to have two
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 14
children (the norm for Cyprus, according to statistics), 20% one child, 20% three, 5% four,
while 1% more than four children.
Respondents’ educational level ranged from Technical School (15%), Lyceum (15%),
3rd-Level Education (27%), University Degree (24%), Masters (16%), and Post-Graduate
(3%). Years of service of respondents again varied, with the majority of respondents ranging
around 25–35 years.
The sample consisted of 48% of the respondents from technical staff, 38% clerical
staff, while 17% professional staff.
Considering the above, the sample consisted of respondents of different educational
background, hierarchical position in the Organisation, gender, marital status and age, in
accordance with the initial scope of the researcher, to receive more representative feedback
from the population concerned.
Employees’ views regarding the Organization’s imminent privatization were
investigated, and specifically how employees actually perceived the forthcoming major
change in their workplace. Inquired whether their Organisation’s privatisation could be
avoided, the majority of respondents (66%) replied positively, while the rest (34%)
negatively. Almost two thirds of the respondents believed that privatisation could be evaded.
Concerning the question on their view whether now is the appropriate time or not, for
privatising the Organisation concerned, the vast majority of respondents (97%) replied
negatively, with many suggesting it would even be better not to privatise it at all. The
majority of employees were against the idea of privatising the Organisation they worked for,
and particularly during this time of economic crisis.
Asked whether privatising the Organisation would result in a rise or reduction in the
price of the services provided by the Organisation, 96% of the respondents replied that it
would bring about a rise, while the rest believed the opposite. Thus, the majority of
respondents believed that a possible privatisation would have adverse results on the price of
the services provided. The vast majority of respondents (99%) consider that the results of a
possible privatisation of the Organisation would be negative for the Cyprus economy itself;
94% of the respondents expressed their worry that the Organisation is driven towards
privatisation. Out of these, 26% stated that these feelings actually affect their mood for work
very much, reporting this at “7” in a 1-7 Likert scale style, while 33% reported to be affected
more than average (ranging between 4-5 on the same scale). These results show that the
majority of employees are worried about an imminent privatisation and that, from these 94%
15 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
who reported feeling worried, more than one in two stated that this affects negatively their
mood for work itself.
One of the critical signs regarding low staff morale is high absenteeism rate, as
revealed in literature review. To determine any effects of the imminent privatisation plans on
employees regarding this factor, an absenteeism report was requested from the Organisation.
Should the privatisation plans have affected employees’ staff morale, one method of
identifying this, would be to trace a consistent increase in sick-leave rates. However, other
factors can affect employees’ absenteeism-rates as well, as was established during the course
of this study. The report provided by the Organisation (Annual Report 2013: Statistical
information on employees’ sick leaves, Organisation’s HR Division) refers to staff-
absenteeism (sick-leaves) for a five-year span (2009–2013).
Though the results indicated slightly higher average absenteeism rates, as compared to
similar Organisations locally and abroad (U.K.), yet, there was a clear improvement in
absenteeism rates during these years, for the Organisation. Average sick-leaves decreased
from 12,96 in 2009 to 9,16 in 2013. This was apparently attributed to a new sick-leaves
administration and control system, implemented in the Organisation in February 2011,
introducing stricter control on sick-leave certificates and sick-leaves in general. Thus, based
on the Absences report, no adverse effects deriving from the imminent privatisation plans,
were identified on staff sick-leaves.
Another significant sign indicating low staff-morale in an Organisation, resistance,
was considered. There was resistance by the employees against the Organisation’s
privatisation plans, organised by all its employees’ Unions jointly and representing all the
staff. (Employees’ Unions’ archive –2014). Staff resistance began in December 2013 with an
hour of warning cessation of operations, followed by a 12-hour strike on 14th February 2014,
a 24-hour strike on 26th February 2014, and a 3-hour warning stoppage of work on 4th March
2014. During the 14th and 26th February strikes, the staff demonstrated outside the
Parliament, expressing their opposition against privatisation, while Parliament’s sessions were
in progress for the approval of the relevant legislation. During all demonstrations, skeleton
staff continued working, to avoid causing difficulties to vital operations on the island.
Another expression of the opposition from employees and their Unions against
privatization plans, was when the great majority of the personnel (1,728 out of 2,200
employees) individually submitted a prosecution to the Supreme Constitutional Court against
the Cyprus Ministry of Councils and against the Organisation’s Board of Directors, in June
2014, according to their Union’s archive 2014, demanding that: a) the Cyprus Ministry of
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 16
Councils withdraw its declaration of the 26/03/2014 according to which, the Organisation is
considered as subject to privatisation, and b) the Board of Directors cancel their previous
decision to appoint a Technical Service Committee for the Organization’s privatisation.
In parallel to the resistance mentioned here, a prosecution for the same purpose was
jointly submitted to the Supreme Court by all of the Organisation’s employees’ Trade-Unions,
representing the staff. This resistance demonstrated by the majority of the personnel, indicate,
as Manning & Curtis propose (1988, p.20), a sign of low morale among employees.
Asked whether the situation they are experiencing today, alters their future plans, 88%
of the respondents answered positively, while the rest negatively, indicating that the majority
of respondents are changing their future plans because of the current situation.
To the question whether the idea of their Organisation’s imminent privatisation has affected in
any way employees’ everyday life, 68% of the population replied that it has, while the rest
replied negatively.
On the extent to which their attitude for entertainment during their free time, has been
changed with the current events, 69% of respondents reported it to have changed, ranking this
change between “4”–“7” on Likert scale of 1-7 (1=low, 7=high). This indicates that more
than two-thirds of the employees’ personal lives have been affected negatively to some extent,
by the current events (the Organisation’s imminent privatisation and the economic crisis),
even affecting the way they spend their free time.
Asked whether they thought their labour and pension rights were in jeopardy, 98%
replied positively, while only 2% negatively. Concerning the Pride factor of staff morale, a
relevant question was included to get an indication on employees’ pride-levels towards their
Organisation, in view of the upcoming privatization. The question “With today’s events, how
proud do you feel to be employed by this Organisation?” was incorporated in the survey. On
a Likert scale 1-7 (1=low, 7=high), 22% of employees reported below average, 18% reported
their pride at “4”, 18% at “5”, 14% at “6”, and 28% at “7”.
From the above statistical analysis, it can be concluded that overall, staff morale in the
Organisation concerned, has deteriorated to some extent, regardless of the subjects’ age,
educational background or gender. Regarding the variable threatened job security,
according to the e-survey results, 98% of the respondents stated that they thought their labour
and pension rights were endangered, thus, the vast majority of respondents felt threatened
regarding their job security, in light of the imminent privatisation.
As regards psychological well-being (identification of anxiety or worry signs deriving
from the imminent privatisation), increased levels of anxiety and feelings of insecurity were
17 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
identified among members of staff, in view of the Organization’s imminent privatisation, with
94% of the staff stating that they feel worried because the Organisation is driven towards
privatisation. Looking at the variable Resistance, undoubtedly, the employees, along with
their Unions, have already taken specific resistance actions such as strikes and prosecutions.
Concerning the variable lack of pride, with 22% of the respondents reporting below average
on the Likert Scale 1-7, and 18% reporting average levels, it seems that the pride variable has
been affected negatively to some extent, and this should be considered by the Organisation’s
management, as it can have negative impact on the Organisation’s performance.
Regarding the variable negative effects on motivation towards work itself, based on
the results, out of the 94% of respondents reporting worried that the Organisation is driven
towards privatisation, 26% stated that these feelings actually affect their mood for work very
much, evaluating it at “7” on a 1-7 Likert-scale, while 33% reported to be affected more than
average (ranging between “4-5”), indicating that many employees are experiencing negative
effects on their mood towards work itself, because of the imminent privatisation.
As to the variable negative effects on employees’ personal lives, with 88% of
respondents reporting that their plans for the future are altered because of the situation they
are experiencing, and 68% of the respondents stating that the idea of the Organisation’s
imminent privatisation has actually affected their everyday life, it can be concluded that the
Organisation’s imminent privatisation has negatively affected many employees’ personal
lives, more than two thirds of the population concerned. Finally, looking at absenteeism
rates, this was the only variable which did not indicate signs of decreased staff morale,
according to the relevant statistical report provided by its Human Resource Division. Yet, the
reduction (rather than increase, which was expected) in absenteeism rates was attributed to a
Sick-Leave System which had been introduced in the Organisation in early 2011, to deal more
effectively with sick-leaves.
3.2 Descriptive – Analysis of Interviews & e-Survey Results
For covering some aspects of the issues which have not been fully revealed through the
questionnaire, interviews were conducted; these were structured and were conducted with
sixteen employees irrespective of rank, who had been selected randomly. The interview
included the following statements/questions:
(3) “Word-association: Which are the first three words you think of, when you hear the
word: a)Privatisation, b)Restructuring, c)Troika”.
(4) “Do you believe that privatizing the Organisation could be avoided? Yes/No” *
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 18
(5) “What are your feelings regarding the Organisation’s imminent privatization?”
(6) “Are you worried that the Organisation is driven towards privatization? If yes, do these
emotions affect your mood towards work?” *
(7) “Do you consider that now as the right time for privatizing the Organisation? Why?”
(8a) “Do you believe that privatising the Organisation would bring about a rise or fall in the
price of the services it provides?” *
(8b) “What do you think will happen to the welfare policy that the Organisation uses
regarding vulnerable groups of people, in case the Organisation becomes privatized?”
(9) “Would the outcome from privatizing the Organisation be positive or negative for the
economy of the country?” *
(10) “Do you think that the Organisation would operate better than today, in the hands of a
private owner?”
(11) “Does the situation you are going through today change your plans for the future?”
(12) “Has the idea of the Organisation’s imminent privatization affected your everyday life in
any way? If yes, how?”
(13) “How do you perceive the general public’s reaction towards the Organisation’s
employees during this time, in view of its probable privatization?”
(14) “How are the Mass Media handling the issue of privatizing the Organisation?”
(15) “Do you think that your labour and pension rights are at jeopardy? Yes/No” *
(16) “With the recent events, how proud to you feel to be employed by this Organisation?”
(17) “How much has your attitude towards entertainment in your free time been altered by all
the events happening today?” *
(18) “In what way to you think the Organisation could stand by you in view of its imminent
privatization? Prioritise your suggestions, ranking 1 = Most Important)”
* N.B. Questions with asterisk were already addressed in the Frequencies Section, earlier.
The answers given have been summarized below:
Question (3):
Word-association Results: During the interviews conducted among members of staff, word-
association was used, to identify how interviewees felt or unconsciously thought regarding
certain issues related to privatisation. The exercise was carried out in a spontaneous manner:
three key-words were mentioned to interviewees, (one at a time), and respondents were asked
to say whatever word (or phrase) came to their mind at the moment. The words used for this
practice were Privatisation, Restructuring and Troika.
19 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Many of the words mentioned by the participants were repeated by different respondents, for
the same key-word. Cumulatively, the words that participants came up with mostly, during
word-association, were:
Privatisation: negative, autocracy, sale, fear, insecurity, profit-making monopoly, menace of
position, laying off employees, salary-reductions, taking advantage of something, working
hours’ increase, unemployment, hunger, poverty, price-increase, anger, unfair.
Restructuring: positive, provided it is done correctly, without any interactions, useful,
greater performance, welfare, correct operating, effectiveness, beneficial, essential,
modernisation, change, improvement, cost-reduction, organisation, best utilisation of
employees’ skills, new situation. (Only a small minority regarded restructuring as negative.)
Troika: negative, unfair, memorandum, measures, salary reductions, poverty, economic
crisis, capital control, dictatorship, fascism, taking advantage of poor people, financial fraud
by politicians, mass privatizations of profitable Organizations, violation of human rights,
monarchy, misery, hunger, evil, rules Cyprus, international economy control, serves
Germany’s interests, necessary but hard.
Analyzing the feedback received from the above exercise, the vast majority of
interviewees regarded privatization as negative, bringing fear, insecurity, unemployment,
poverty etc. Similar words, and even more threatening ones (such as “fascism, dictatorship”),
as shown above, were associated by interviewees to the key-word Troika. However, when
Restructuring was mentioned to participants, there was a tendency for the majority to
associate it with positive meaning, such as “useful, positive, improvement, beneficial”.
Therefore, the majority of employees tend to have a positive attitude towards the
Organisation’s restructuring, yet a negative one towards its privatization and towards Troika.
Question (7):
97% replied negatively, with reasons for believing now is not the appropriate time for
privatising the Organisation, summarised below:
During economic crisis, it is not advisable to sell out, as the price of the Organisation
will be very low at the time, it would be a “sale” of a profitable Organisation. With half of
the island under Turkish occupation, the Organisation should remain under the Government
for national security reasons. Cyprus is an island with special circumstances, thus
encouraging competitors in the sector would not result in reducing costs for consumers. The
services provided by the Organisation should belong to the Government for social/welfare
reasons, and considering similar privatisations abroad, the results following privatisation were
not beneficial to society but rather created private monopolies. Privatizing the Organisation
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 20
would end in more expensive bills for consumers, higher unemployment, private monopoly
and reduction of income for the Government, in the long-run. A private owner will only seek
to increase his/her personal profits, without considering offering social welfare programmes
to vulnerable consumers such as the poor, and without spending required amounts of money
to maintain and continuously upgrade machinery and equipment and processes to ensure
safety. Privatisation of the Organisation is not advisable, as dividing it to four, would only
result in additional administrative costs which the end-consumer will pay.
Question (8b):
According to the respondents, the Organisation’s current social welfare policy will diminish
or even vanish, should the Organisation be privatised.
Question (10):
The majority of respondents replied negatively, believing that a monopoly would occur, with
the private owner mostly wishing to increase his own profits on the expense of society.
Question (11):
88% of respondents answered positively, indicating that the majority of them are changing
their plans for the future because of the current situation. The majority of respondents
reported they felt the future was uncertain and insecure and they were not sure about their
work or the amount of salary they would receive. “When there is uncertainty in labour issues,
there is financial uncertainty and….uncertainty on your long-term plans, it’s a chain-
reaction.”, a respondent characteristically stated. Thus, employees in the Organisation cannot
take any long-term decisions anymore, but rather stick to more short-term ones and have
become more reserved.
Question (12) & (5):
The words and phrases which prevailed when further asked in what specific way the idea of
the Organisation’s imminent privatisation has touched their everyday life, were: “tension,
stress, worry for the possibility of losing my job, fear, insecurity, uncertainty for the future,
uncertainty for Cyprus, no long-term planning, unhappy, more reserved financially” Other
words included: “loss of hope, worry for the unknown of what the Organisation will end up in,
negative psychology in employee behaviour and performance, freezing of future plans, bad
mood due to uncertainty, pressure, and questioning”.
Question (13):
Employees perceive some people from the general public as confronting them in a hostile
manner with feelings of jealousy, while others reacting in a way as if the economic crisis on
the island was produced by the Organisation’s personnel, creating a negative climate at the
21 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
workplace for them. Other people from the general public tend to think that they will benefit
from a probable privatization of the specific Organisation, and this attitude, according to
respondents, is the result of the misinformation that prevails through the Mass Media. Other
people feel insecure in case of losing the Organisation’s social policy. Finally, according to
respondents, there are those who are against the Organisation’s privatization and believe that
such a development would not be beneficial for the island.
Question (14):
Respondents reported that because most of the media are financially controlled, they are
handling this issue in a wrong/negative way. Consequently, the mass media are providing the
public with misinformation and propaganda and are negative towards the Organisation,
without (or rarely) giving the chance to its employees’ Unions to express their position on the
subject that concerns them most. Only some of the media are impartial, while the majority
are in favor of the Organisation’s privatization, because of their own private financial
interests. Directed by those who pay them and influenced by politicians wishing to
implement privatization on the Organisation, the majority of the media do not carry out
unbiased research-reporting. For example, as interviewees suggested, the mass media could
conduct research on what other countries did and are doing regarding the same sector.
Instead, they are hiding the truth. Consequently, people get influenced by the media and feel
angry towards the Organisation and its high bills.
Question (16):
For more qualitative feedback on pride, employees were encouraged to express their thoughts
and views. The majority of respondents stated that they felt proud because their Organisation
offers the best to society, providing safe and reliable services to every consumer premise. As
respondents described, the Organisation has achieved providing services even to the most
distant part of the island, without considering any costs, something that individual
businessmen would never do.
(Question 18):
The main suggestions, derived from the employees themselves when asked specific ways with
which they thought the Organisation could stand by them in view of its imminent
privatisation, were as follows:
Safeguard existing employees’ benefits and rights
The Organisation should ensure all employees’ labour and pension benefits are secure and
remain intact. All collective agreements should remain intact. Also, job security should be
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 22
safe-guarded for all its current employees and their status as public service personnel must
remain unchanged.
Effective internal, external communication and image improvement
The Organisation should systematically inform its personnel on developments occurring
regarding its privatisation and should develop communication channels with the employees’
Unions. Also, it should consistently inform public opinion on the work it has been doing
since its existence and also on the subject of its privatisation and its pros and cons, improve its
PR and communication towards the general public and project the correct image regarding the
Organisation.
Immediate restructuring
The Organisation should itself proceed straightaway with restructuring and take measures for
improving all processes and any weaknesses, utilising technical support and advice from
experts on the modernisation of its operations and making the best of its existing personnel in
a productive way.
Training
Personnel training is the most effective way to deal with the new challenges happening in the
Organization.
Other suggestions
It should help staff economically, particularly those facing economic difficulties, through
actions such as low-interest lending of staff from their Pension Funds.
Through a Voluntary Retirement Scheme - it should also give its employees the retirement
amount that they are entitled up till now.
3.3 Research Questions addressed
Evaluating the overall results and respondents’ feedback concerning the variables associated
with negative effects on staff morale, the following conclusions were reached on the subject
of the research questions of this study:
a) As was revealed during this study, based on Herzberg’s hygiene factor theory mentioned
earlier, with the imminent privatization of the Organization approaching its implementation,
increased levels of anxiety, job insecurity, and decreased levels of morale were indeed
identified among members of staff in the Organization under review.
b) According to the survey results, this negative impact affected, to some extent, adversely,
employee’s motivation and mood towards work itself.
23 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
c) Assessing the feedback from the e-survey and the interviews, the negative impact on staff
morale, prompted by the Organisation’s imminent privatisation, was connected with a
negative influence on many of the staff members’ personal lives, bringing about changes in
their way of life, their mood for entertainment, and even their plans for their family’s future
activities.
Hypothesis 1:
The upcoming privatization threatens employees’ job security, consequently, levels of
anxiety, insecurity and stress are elevated, while morale is decreased.
Therefore as hypothesized, employees working in a Company undergoing privatization,
did exhibit low morale and increased levels of anxiety, stress and insecurity, based on the results
of the surveys and the interviews, thus hypothesis 1 was met.
4. Conclusions & Recommendations
Further to the suggestions received by the employees themselves (question 18), other
suggestions which the researcher would propose, with some based on literature review, for
improving staff morale, include:
Through community service such as charity events, employees could become actively
involved in a charity, on a voluntary basis, to boost employee morale and “camaraderie”.
(http://www.entrepreneur.com/article/220000).
Encourage physical exercise through offers from management for participation in local
gyms with discounts for staff, as exercise is an effective stress-buster and can improve
employees’ well-being, particularly in times of continuous and stressful changes in their
workplace.
Cultivate optimism in the Organisation through positive thinking and positive attitude
development training. As Holden, R. suggests (Mackay, 2007, p. 284), we need to keep a
bright eye ahead and to seek to achieve things in life which add value, rather than just tasks to
do in a hurry.
Redeploy talent, instead of downsizing.
The Organisation should seek ways to make the best of its existing employees’ talents and
skills, rather than consider downsizing through privatisation. (Abrahamson, 2004)
Change-management training.
To help employees cope efficiently and effectively with the processes of change expected to
occur in the Organisation, so as to maintain their staff morale, well-being and quality of life.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 24
Concluding, it was identified that the Organization’s imminent privatization is one of
the main factors for increased levels of anxiety, stress, feelings of insecurity and doubt in
many members of staff. Consequently, it would be advisable for the Organisation’s
Management to take additional measures to help their personnel through these drastic changes
taking place in the Organisation. Consistent and regular communication from the
Management to all staff regarding any occurring changes on the issue of privatisation,
communication with the employees’ representatives to reach a mutual understanding and
efforts to ensure current employees’ rights are safe-guarded, further training regarding
managing change effectively, the creation of focus/support groups for staff, are just some of
the steps that would help minimize adverse effects of dramatic Organisational changes on the
employees. By minimizing negative effects related to Organizational changes on employees,
staff morale and employees’ psychological well-being would be protected and Organizational
performance and productivity would not be affected.
5. References Abrahamson, E. Change Without Pain: how managers can overcome initiative
overload, organizational chaos, and employee burnout, Boston: Harvard
Business School Press, 2004.
Carnall, C. Managing Change in Organizations, 5th., Essex: Prentice Hall, 2007.
Hall, D, Lobina, E. and De la Motte, R. (2005). Public resistance to privatization in
water and energy. Development in Practice Journal, Vol. 15, 3&4, June 2005.
Routledge Publishing. pp. 286-301, (available at www.psiru.org/reports/2005-06-w-e-
resist.pdf, accessed on 23/07/2014).
Mackay, A. Motivation, Ability and Confidence Building in People. Oxford:
Butterworth-Heinemann, 2007.
Manning, G. and Curtis, K. Morale – Quality of work life. Ohio: South-Western
Publishing Co., 1988.
Manson, B.J. Downsizing Issues: The Impact on employee morale and productivity.
New York: Garland Publishing, Inc., 2000.
Nelson, A. and Cooper, C. (1995). "Uncertainty amidst change: The impact of
privatization on employee job satisfaction and well-being, " Journal of
Occupational & Organizational Psychology, 1992, 68, pp.57-71.
Organisation’s Employees’ Pancyprian Union’s Archive, 2014.
Statistical Data regarding Organisation’s staff: Human Resources Department, June
2014.
Statistical information on employees’ Sick-Leaves -Annual Report 2013 –
Organisation’s Human Resource Division.
Internet sources
http://www.businessballs.com/herzberg.htm, accessed on 8/08/2014
http://www.businessdictionary.com/definition/employee-morale.html, accessed on12/03/2014
http://www.entrepreneur.com/article/220000, accessed on 12/12/2013
25 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Who are the entrepreneurs that adopt sustainable tourism practices?
Abstract:
This study aims to profile the entrepreneurs who spend money on the adoption of sustainable
actions in the tourism sector in Greece. The empirical analysis is based on the estimation of
logistic and ordered logistic regression models. Results suggest that younger entrepreneurs are
probably more likely to spend money to adopt eco-friendly actions. In general, higher-
educated entrepreneurs and owners of bigger tourism companies are also more likely to spend
money to adopt sustainable practices. Important factors that positively affect tourism
entrepreneurs’ choice to spend on sustainability practices are their environmental awareness
and past experience regarding the available eco-friendly activities. Finally, entrepreneurs’
socioeconomic profile explains differences toward their beliefs about the contribution of their
businesses to the degradation of natural environment.
Keywords: Tourism sector; Sustainability actions; Spending; Entrepreneurs profile.
JEL: Q01; L26; L83
Sardianou, E., Kostakis1, I., Mitoula, R., Gkaragkani, V. Lalioti, E and E.
Theodoropoulou
Harokopio University, School of Environment, Geography and Applied Economics,
Department of Home Economics and Ecology, 70 El. Venizelou Av. 17671, Kallithea,
Greece.
1Corresponding author: Dr. I. Kostakis Tel: +30 2109549216, [email protected]
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 26
1. Introduction
The promotion of the tourism sector has increased within Europe. Especially for countries
under recession, tourism is supposed to be a key to create jobs and enhance the economic
development. However, emphasis is given to the promotion of mass tourism, disregarding the
possible negative effects for the environmental quality. Thus, a shift to sustainable tourism
patterns is necessary to avoid environmental degradation. However, the penetration of
sustainable development in the tourism sector is strongly related to the acceptance and
adoption of relevant practices by tourism stakeholders. The tourism sector is sustainable when
it protects the local culture, contributes to the environmental protection and improves the
social well-being (Swarbrooke, 1999). As Fennell (1999) pointed out, it is possible for the
tourism sector to promote environmental protection by implementing relevant educational
programs. Entrepreneurship is a key factor for the promotion of the tourism sector in Greece.
Thus, the degree to which stakeholders of the tourism sector implement sustainable practices
affects the effectiveness of a sustainable tourism plan for a region. Several studies have been
conducted on the issue of entrepreneurship and sustainable development (Lordkipanidze et al.
2005; Tilley and Young, 2006; Hall et al. 2010; Thompson et al, 2011). There are several
significant aspects of sustainable entrepreneurship. Most of the studies approach sustainable
entrepreneurs as individuals who combine economic, environmental, and social aspects of
sustainability into their business (Young and Tilley, 2006; Parrish, 2010). Most of these
studies have focused on the theoretical conceptualization of sustainable entrepreneurship.
Other researchers have examined the role of employees on sustainable entrepreneurship
(Wolf, 2012) or visitors’ perspectives on sustainable tourism patterns (Nicholas and Τhapa,
2010). In Greece, the increase of tourism activities puts a great pressure on the natural
environment. Unlike previous studies, in this one, we examined the real actions toward
sustainable tourism practices rather than the intentions of doing these practices. In particular,
the aim of this study is to examine the determinants that affect entrepreneurs’ actions taken
regarding sustainable tourism. This study chooses to estimate the determinants that prompt
entrepreneurs to spend money on sustainable practices, while it is expected that target group
plays a significant role on the promotion of eco-friendly tourism development.
2. Methodology
2.1 Sampling and data collection
Data were obtained from 350 entrepreneurs involved in tourism. The research took place in
the cities of Karditsa and Kalabaka, Greece in 2013. The specific areas of investigation where
27 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
chosen due to the fact that both cities belong in the same regional unit, the region of Thessaly;
thus having similar geographical and economic characteristics. The survey was conducted
using an anonymous structured questionnaire. Given the purpose of our study, we interviewed
entrepreneurs at their tourism businesses. The response rate was almost 82% and the survey
resulted in a data set of 287 entrepreneurs. 146 questionnaires were selected from the area of
Karditsa and 141 from the area of Kalabaka. The questionnaire consisted of two sections: The
first section included closed type questions on demographic characteristics of the
entrepreneurs; such as gender, age, educational background and family status. In addition,
questions aiming to describe the economic performance of the business were included. In
particular, entrepreneurs were asked about their revenues and their monthly private income,
the type of employment and the people employed in the enterprise. Finally, entrepreneurs
were asked about their beliefs regarding the environmental performance of their businesses
and their actions taken to adopt sustainable tourism practices. Emphasis is given on the
decision of money spending to adopt eco-friendly practices and the specific sustainability
actions taken in the tourism businesses.
2.2 Model specification
Empirical results are based on the estimation of logistic and ordered regression models.
Binary logistic model is estimated to predict the probability of an entrepreneur spending
money to adopt eco-friendly practices. The general specification of the proposed model is:
1 i 2 i 3 i 4 i 5 i 6 i 7 i
8 i 9 i
[Pr( 1)] o
i
Logit Y c c age c will c univ c revyear c owner c empl c protec
c past c prog
(1)
where the dependent variable is a binary variable indicating whether the entrepreneur i has
spent money to adopt eco-friendly practices in their business; specifically, the variable takes
the value 1 when the entrepreneur spends money and zero otherwise. As far as independent
variables are concerned, agei is the respondents’ age; willi is a dummy variable accounting
for 1 if the respondent believes that their customers will pay more for services which are
environmentally friendly and zero otherwise; univi is a dummy variable accounting for 1 if the
entrepreneur has completed a high education college and zero otherwise; revyeari is the
average yearly revenue of the entrepreneurs; owneri is a dummy variable accounting for 1 if
the respondent is the owner of the company and zero if he/she is an employee; empli is a
qualitative variable expressing the number of employees per business; proteci is the variable
that takes the value 1 if the businessman believes that the issue of environmental protection is
an important matter for the society; pasti is a dummy variable accounting for 1 if the
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 28
businessman took information in the past regarding the available actions that can contribute to
environmental protection and zero otherwise; progi is a dummy variable accounting for 1 if
the entrepreneur has ever joined a development program (such as “leader” program) and zero
otherwise; and ε is an error term. The empirical results from the estimation of Eq. (1) are
presented in the next section of this study.
On the other hand, ordered logit models is estimated to predict the level of agreement
regarding the statement “Do you think that the economic activities of your business contribute
to the degradation of the natural environment?” (Answers: Disagree, Neutral, Agree).
Therefore, in the empirical study, we employed the following expanded
specifications.
*
1 2 3 4 5 6 72i o ity age age will revyear owner empl market (2)
where *
iy is the latent variable measuring the level of respondents attitude regarding that
the economic activities of their company contribute to the degradation of the natural
environment. agei is the respondents’ age; age2i is the square age of the respondents; willi is a
dummy variable accounting for 1 if the respondent believes that tourists will pay more for
services which are environmentally friendly and zero otherwise; revyeari is the average yearly
revenue of the tourism businesses; owneri is a dummy variable accounting for 1 if the
respondent is the owner of the company and zero if he/she is an employee; empli is a
qualitative variable expressing the number of employees per business; marketi is a dummy
variable accounting 1 if the respondent uses strategic marketing techniques in his/her business
and zero otherwise and εit is the error term of the equation. The empirical results from the
estimation of Eq. (2) are presented in Table 2 in the next section of this study.
3. Results
The results of the statistical and econometric analyses estimating the determinants that affect
entrepreneurs’ beliefs towards sustainable tourism management are as follows:
3.1 Frequency statistics
The gender of the sample entrepreneurs was 42.5% women and 57.5% men. 45.2% of the
entrepreneurs were university-educated while 36.9% had completed secondary education.
Regarding their age, 49.5% of the respondents were between 26 to 40 years old; 12.2% were
between 20 to 25 years old, 21.6% between 41 to 50 years old and 16.7% above 50 years old.
The annual revenue of 21.9% of entrepreneurs varied between €4,001 to €10,001, 21.2% of
entrepreneurs’ declared annual revenues varied between €22,001 to €28,00 and 19.9%
declared having revenues above €28,001. The majority (84.3%) reported that they were the
29 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
owners of the business and the rest were employees. The businesses’ average years in
operations were 14.6. From the sample of entrepreneurs in question, 20.2% run hotels or
resorts, 16.7% restaurants and coffee shops, 39% commercial shops and the rest (24%)
souvenir shops. The great majority of the respondents (84.3%) were employed exclusively in
this particular business. Members of the family of the owner were also employed in the
business (51.2%) and those people employed outside the family were local workforce
(91.1%). Only 13% of the enterprises employed more than ten persons per company. An
89.2% of the enterprises operated all year round and the rest seasonally. However, most of the
enterprises made more profits during summer (64.5%) and holidays seasons (41.1%)
compared to the other seasons. A 32.4% of the entrepreneurs did not advertise their business
and 50.7% thought that small and medium enterprises cannot compete with bigger ones. Most
of the entrepreneurs considered their business profitable. However, only 19.2% of
entrepreneurs had joined a local development program such as “Leader”. Finally, local
competition (59.6%), lack of innovation (11.5%) and lack of financing access to (13.2%) were
characterized as the most important entrepreneurship’s problems. However, it would be more
informative to illustrate comparatively the focal characteristic of our sample between two
cities of research. Entrepreneurs were asked about the environmental performance of their
businesses and their actions to adopt sustainable tourism practices. As we can notice higher
than 55% of the entrepreneurs from Karditsa did not recognized that the economic activities
of their business contribute to the degradation of the natural environment while more than 1/3
entrepreneurs from Kalabaka have the same attitude. On the other hand, the majority of
entrepreneurs from Kalabaka support that they contribute “a little”, almost 50%; while a very
small percentage of the respondents answered “a lot” and “very much” respectively (figure 1).
Figure 1: Do you think that the economic activities of your business contribute to the
degradation of the natural environment?
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 30
One more interesting question was referred to the attitude of customers based on the
indications of the respondents – entrepreneurs. As we can see, from figure 2, there is a
negative attitude on this question. More specifically, the majority of respondents in both
regions believe that their customers will not pay more money for services that are more
environmentally friendly. It is high of interest that more than 34% of the sampled
entrepreneurs in the city of Kalabaka and 20.5% of entrepreneurs in Karditsa believed that
their customers will not pay more for tourism services which are eco-friendly. This belief
implies a pessimistic opinion on the part of entrepreneurs regarding the acceptance of
environmental strategies in the tourism sector for the most important stakeholders, tourists.
Figure 2: In your opinion, will your customers pay more for services which are
environmentally friendly?
Another important characteristic is referred to the reasons that local entrepreneurs
believe that tourists visit their areas. Figure 3 illustrates these personal options. As it is
noticeable, the great majority of the respondents believed that tourists visit their area due to
the history of the region and also for its natural environment. On the other hand, the rest of
the sample thought that visitors prefer their village in order to come in contact with the natural
environment or because they find it as an opportunity to escape from everyday’s routine.
31 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Figure 3: For which of the following reasons, do you believe that visitors choose your area?
Entrepreneurs were also asked to define the term “sustainable development” of a region.
It is interesting that only 9.1% selected “environmental friendly activities” or “solely
economic activities” (15.7%) and 74.9% chose “economic activity with respect to
environmental protection”. However, as shown in figure 4, 34.9% of the entrepreneurs from
Karditsa and 32.6% from Kalabaka reported that they were moderately, or a little (20.5% and
28.8%, respectively) informed about the potentials for sustainable tourism development in
their area. Finally, as shown in Figure 4, only 4.3% of the entrepreneurs from Kalabaka and
8.9% of the entrepreneurs from Karditsa were “very much” informed about the potential of
sustainable tourism development in their area. The percentage of the respondents that had no
information about the potentials of sustainable tourism development in the area of Kalabaka
was greater than that from Karditsa.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 32
Figure 4: Percentage of replies to the question: Are you informed about the potentials for
sustainable tourism development in your area?
With respect to the question “Which of the following actions do you consider most
important to support sustainability”, entrepreneurs reported as important factors for tourism
sustainability the promotion of environmental labels and the certified management systems in
tourism businesses as well as the idea of the creation of knowledge networks and web sites
focused on sustainable business. Finally, we investigated important determinants that are
related to the whole sample of the entrepreneurs. In particular, regarding the question “Can
you tell us, if your enterprise took any action to contribute to environmental protection?”
about half of the entrepreneurs (44%) answered positively. With respect to the environmental
actions that entrepreneurs had implemented in their business, about half of the respondents
had done recycling, whereas 64.1% had replaced inefficient lamps. However, the majority of
the entrepreneurs (72.8%) used in their business environmentally friendly cleaners and 65.5%
to use organic products. Accordingly, the majority of respondents (76.7%) reported that they
spend money to adopt infrastructure to contribute to environmental protection. In regard to the
reasons for not adopting businesses actions that do not harm the environment, 40.1% of
entrepreneurs declared financial reasons, 15.4% bureaucracy, 27.2% lack of know-how,
14.2% lack of interest and only 3.1% lack of staff.
3.2 Logistic Regression Analysis
Several interesting results were obtained from the empirical estimation of Eq. (1). Table 1
summarizes the empirical results of the logit equation's estimated coefficients with respect to
the probability to spend on adopting tourism infrastructure that is eco-friendly. Similarly,
Table 2 presents the estimated coefficients of the ordered logistic model regarding
entrepreneurs’ belief for the level of degradation of their business to the environment.
33 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Table 1: Estimated binary logistic regressions of entrepreneur's spending in order to adopt
eco-friendly practices in their business (yes: 1 no: 0) (n=287)
Note: ***, **, * represent levels of significance at 1%, 5% and 10%, respectively. Standard
errors are presented in parentheses.
In particular, the parameters of the ordered logit model were estimated by maximum
likelihood estimation. Estimation results are shown in Table 1. First, the main focus of this
discussion is the interpretation of the statistical significance of the independent variables, the
so called marginal effects. The changes in the probability levels of the dependent variables are
also estimated, providing an interpretation of the substantive effect of the independent
variables. This allows one to interpret changes in the probability of the agreements levels for a
change in a given parameter, relative to the reference case. As shown, in the second column of
Table 1, in the case of entrepreneur’s socioeconomic variables, all the variables are
statistically significant in 0.01, 0.05 and 0.05 levels.
As follows from Table 1, there is a negative correlation between the entrepreneurs’
age and the probability of spending on the adoption of eco-friendly actions, in case of tourism
businesses. Specifically, we found that each year of age, decreases the probability of spending
money for creating an infrastructure that will protect the environment by 0.09 percentage
points. Moreover, results show that high-educated entrepreneurs and entrepreneurs who
believe that their customers are environmentally concerned are more probably to spend
Independent variables Estimated Coefficients Marginal
effects Odds Ratio
Constant -0.415
(0.897) - -
Age -0.063***
(0.018) -0.009 0.938
Will 0.795***
(0.204) 0.111 2.215
univ 0.068*
(0.385) 0.096 0.509
revyear -0.208***
(0.064) -0.029 0.813
owner 1.074*
(0.554) 0.187 2.927
empl 0.077*
(0.387) 0.011 1.080
protec 2.227***
(0.256) 0.311 9.269
past 0.639**
(0.365) 0.087 1.895
Prog 0.829*
(0.497) 0.098 2.292
Log likelihood -116.028
Pseudo R2 0.256
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 34
money on the adoption of eco-friendly activities. On the contrary, businessmen whose
companies have high yearly revenue are less probable to spend money in order to adopt green
activities. This result can be explained due to the reason that more profitable companies’
entrepreneurs give less priority to the adoption of environmental parameters than profit. Our
findings show that big companies’ owners are more possible to spend money on the adoption
of eco-friendly practices. Additionally, results suggest that awareness and concern about
environmental issues lead to higher probabilities of spending on green actions in the tourism
sector. Finally, tourism entrepreneurs who believe that the issue of environmental protection
is an important matter for the society are more probable to spend money on eco-friendly
activities. The same holds for businessmen that took information in the past regarding the
available actions that can contribute to environmental protection.
As regards the profile of environmentally conscious entrepreneurs, Table 2 presents
the results of the ordered logistic model with respect to entrepreneur’s agreement on the fact
that their businesses contribute to the environmental degradation.
Table 2: Estimated ordered logistic regressions of entrepreneur's agreement that their
business contribute to the environmental degradation (n=287)
Note: ***, **, * represent levels of significance at 1%, 5% and 10%, respectively. Standard
errors are presented in parentheses.
As follows from Table 2, the variable of age and age square are statistically
significant. That means that as age increases the probability of agreement that their tourism
businesses contribute to environmental degradation decreases. It is high of interest that this
Independent variables Estimated Coefficients Marginal
effects Odds Ratio
Age -0.115
(0.078) -0.009 0.938
age_2 0.001**
(0.001) 0.111 2.215
will 0.426***
(0.131) -0.096 0.509
revyear -0.115***
(0.037) -0.029 0.813
owner -0.618*
(0.332) 0.187 2.927
empl 0.052**
(0.024) 0.011 1.080
market -0.373***
(0.241) 0.311 9.269
cut_1 -2,307
cut_2 -0,452
cut_3 1,242
cut_4 1,875 Log likelihood -313.138
Pseudo R2 0.049
35 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
diminishing return exists up to 41 years old. In case of the variable “will”, results imply that
entrepreneurs who support the idea that their customers will pay more for eco-friendly
services think that at the same time economic activities of their business contribute to the
degradation of the natural environment, ceteris paribus. In the case of ownership, result
implies that the corresponding percentage change is -0.618. This means that, as expected,
owners are less likely to agree that their company leads to degradation of natural environment
compared to employees, all other remaining fixed. Similarly, entrepreneurs who have used
strategic marketing techniques in their business do not support the idea of contribution of their
company to the environmental degradation. Finally, as the number of employees increases the
probability of agreement that they contribute to environmental degradation via their company
increases too. On the contrary, high income tourism businesses are less probable to agree that
their company’s activities contribute to environmental degradation.
Further, predicted probabilities could be examined reflecting the number of categories.
More specifically, the following table shows the results of the aforementioned analysis.
Table 3: Predicted probabilities
Pr(y=0|x): 0.463
Pr(y=1|x): 0.384
Pr(y=2|x): 0.122
Pr(y=3|x): 0.015
Pr(y=4|x): 0.017
So, for all average values, the probability of thinking that respondents’ companies do
not degrade natural environment is 46% and the probability of degrading it “a little” is
38%. This result shows that there is on average the entrepreneurs’ agreement that their
companies do not contribute to the environmental degradation.
Figure 5: Graphs of predicted probabilities
0.1
.2.3
.4
20 40 60 80pragex
pr(1) pr(2)
pr(3) pr(4)
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 36
Note that the fact that slopes are similar but with a little different directions, is normal
due to the fact that as probability of being in the first category [pr(1)] increases, the
probability of being in the other categories decreases, as age increases. However, the
magnitude of this result decreases as age increases indicating that older entrepreneurs believe
that their business does not contribute to the environmental degradation whereas this occasion
is different between younger entrepreneurs.
4. Conclusions
Tourism sector is considered to be important for the economic rural development of a city.
However, the entrepreneurs should adopt sustainable tourism practices in order to avoid
negative impacts of their activities to the natural resources. In this context, this paper provides
insights into the reasons that affect entrepreneurs’ decisions regarding spending on the
adoption of eco-friendly business practices in the tourism sector in Greece. The empirical
results suggest that socioeconomic and business characteristics play a systematic role of
sustainable tourism development in a specific area because the decision to spend money on
eco-friendly actions differentiates regarding the entrepreneurs’ specific characteristics.
In particular, this study shows that elders are less probable to spend money on the
adoption of sustainable business action. This may occurs because they do not believe that
their company contributes to the environmental degradation. Moreover, it’s more likely for
owners of a company and for higher educated entrepreneurs to spend money on the adoption
of eco-friendly business practices. Contrary, entrepreneurs with high business revenue are less
probable to spend money on the adoption of eco-friendly actions, probably because they have
other decision priorities for their companies. As expected, important factors that positively
affect tourism entrepreneurs’ choice to spend on sustainability practices are their
environmental awareness and past experience regarding the available eco-friendly activities.
For the policy makers, it is important to know the profiles of the entrepreneurs that do not
take action towards sustainability issues because they can formulate their environmental
campaigns accordingly. Despite the significant findings of the present study, a number of
limitations should be noted. Particularly, a limitation of the study is the fact that
environmentally friendly actions the entrepreneurs adopted were self -reported and we did not
confirm the actual sustainability performance of their businesses. Additionally, although we
have recruited respondents employing a stratified sampling method in the case of the two
specific regions, addressing a larger group of entrepreneurs throughout the country would
benefit the generalization of our results. Therefore, further research is needed to achieve
37 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
measurement on sustainable tourism development. Specifically, emphasis must be given on
the various aspects that form sustainable business actions. Further research is needed on the
specific actions that tourism entrepreneurs should adopt and spend money on in order to
prompt sustainable development.
Acknowledgements
A previous version of this paper has been presented in the conference of “Socio-Economic
Sustainability, Regional Development and Spatial Planning: European and International
Dimensions & Perspectives”, in Mytilene, Lesvos.
5. References
Fennell, D. A. Ecotourism: An Introduction. New York: Routledge, 1999.
Lordkipanidze, M. Brezet, H., Backman M. “The entrepreneurship factor in
sustainable tourism development”, Journal of Cleaner Production, 13, 8, June 2005 pp.
787-798.
Nicholas L, Τhapa, B. “Visitor perspectives on sustainable tourism development in the
Pitons Management Area World Heritage Site, St. Lucia”, Environment
Development and Sustainability, 12, 10, January 2010, pp. 839-857.
Parrish, B. D. “Sustainability-driven entrepreneurship: Principles of organization
design”, Journal of Business Venturing, 25, 5, September 2010, pp. 510–523.
Swarbrooke, J. Sustainable Tourism Management. Wallingford, UK, CAB, 1999.
Thompson, N., Kiefer K., York. J. G. “Distinctions not dichotomies: exploring social,
sustainable, and environmental entrepreneurship” Social and Sustainable
Entrepreneurship Advances in Entrepreneurship, Firm Emergence and Growth,
13, 2011, pp. 201–229.
Tilley, F., Young, W. “Sustainability entrepreneurs: Could they be the true wealth
generators of the future?” Greener Management International, 55, Summer
2006, pp. 79–92.
Wolf, J. “Improving the Sustainable Development of Firms: The Role of Employees”,
Business Strategy and the Environment, 22, June 2012, pp. 92-108.
Young, W., & Tilley, F. Can businesses move beyond efficiency? The shift toward
effectiveness and equity in the corporate sustainability debate. Business Strategy
and the Environment, 15, 6, November/ December 2006, pp. 402–415.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 38
Financial Risk Assessment of Albanian SMEs with the help of Financial
Ratio ( A case study– SME-s in Gjirokasra region)
Abstract:
The purpose of this woCR is to assess financial risk, facing Albanian SMEs. The study is
focused on the analysis of financial ratios issued by the Balance Sheet, Statement of Income
and Expenses, Cash Flow of SMEs operating in the region of Gjirokastra, for the period 2009
- 2013, through which is assessed the capital structure risk, the liquidity risk and the
insolvency risk. For the assessment of financial risk financial data are processed with
statistical software SPSS version 21, using a linear regression model. Through this analysis,
is going to be identified which elements have the greatest impact of financial risk and which
steps the bussinesses should follow to reduce negative risk or to improve a positive ones.
Key word: financial risk, capital structure risk, liquidity risk, insolvency risk , SMEs
Lorenc Koçiu1, Romeo Mano2, Armand Hysi3
1 Departement of Economics, “Eqrem Çabej” University, Gjirokastra, Albania, Email: [email protected] 2Department of Mathematics, “Eqrem Çabej” University, Gjirokastra, Albania, Email:
[email protected] 3 Departement of Economics, “Eqrem Çabej” University, Gjirokastra, Albania, Email: [email protected]
39 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
1. Introduction
SMEs are the most dominant form of business type in OECD countries and moreover they
have employed about 2/3 of the work force (Altman et al, 2009). Even in Albania SMEs are
the dominant form of doing business. During 2013 in Albania are registered as businesses of
SMEs category around 101917 businesses, where the total businessess is 102767, so they
occupy about 99% of the total number of businesses in Albania (INSTAT, 2013). SME
definition is different for different countries. In Albania, the definition of SMEs is amended
by Law No. 8957, dated 17.10.2002 "For Small and Medium Enterprises",changed. Those
enterprises,which employ up to 9 employees and their annual economic turnover do not
exceed 10 million lek4, are called micro-entrepises. Small enterprises are called those
enterprises which employ from 10 to 49 employees and have a turnover or a total annual
balance sheet less than 50 million lek. Medium enterprise are called those enterprises which
employ from 50 to 249 employees, and have a turnover of or a total annual balance sheet up
to 250 million lek.
Financial risk facing the Albanian SMEs is of utmost importance. An accurate
understanding of this risk and a well assessment would have lots of positive consequences
such as reduction of insolvency, reduction of bankruptcy rate, reduction of financial hardship.
It will also have an impact on reducing the rate of closure of SMEs, because we know that
SMEs have a natality and closing rate of activity many times higher than big business.
For the assessment of financial risk , this work is based on the analysis of financial
statements made to SMEs in the region of Gjirokastra. Part of the financial statements are the
Balance Sheet, Statements of Income and Expenses and Cash Flow. These statements are
easier to design and understand, and have fewer elements than the financial statements of big
business. In this paper are taken to study the financial statements of 50 businesses, that
belong to the category of SMEs that operate in the region of Gjirokastra. Gjirokastra Region
has a population of 68,497 inhabitants, with a gender composition 34794 males and 33702
females (INSTAT, 2013), an area 2884 km2, consists of 6 town halls, 26 municipalities and
269 villages .
2. Objectives.
The main objective of this paper is to assess financial risk and factors affecting it. In order to
achieve the main objective are rosen the following research questions .
a) Do the financial ratios have the same impact on financial risk in any fiscal period?
4 Lek is the Albanian money
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 40
b) Do the Albanian SMEs have the possibility to identify financial ratios with the greatest
impact on financial risk?
3. Methodology
To successfully accomplish this paper were taken in the study balance sheet, statement of
income and expenses and cash flow of 50 businesses that belong to the category of SMEs that
operate in the region of Gjirokastra market. The financial statements cover a period of 5 years,
from 2009 to 2013.
These financial statements are processed by identifing the relevent ratios of three risk
components of financial risks:
I. Financial ratios of capital structure risk
a) Long-term debt /equity ratio (LTDER) - This ratio shows the level of financial leverage
in terms of long-term debt.
b) Total Liabilities / Total Assets ratio (DR) – This ratio shows the total assets of the entity
to finance with debt. In this case both short-term debt and long-term debt is comprised.
c) Equity/total assets ratio (ETAR) – This ratio shows the assets part of the entity financed
with own capital.
d) Long –term debt /total assets ratio (LTDAR) – this ratio shows the part of assets of the
intity financed with long term debt.
e) Interest Coverage Ratio (ICR) – This ratio shows the entity's ability to cover interest
payments from its profits, particularly from earnings before interest and taxes (EBIT)
II. Financial ratios of liquidity risk
a) Current ratio (CR) – this ratio shows the ability of the entity to cover current liabilities
with current assets, so with 1 lek current assets how lek current liabilities are covered.
b) Quick ratio (QR) – This ratio is calculated as the ratio of liquid assets to current
liabilities of the entity. In this case inventory is excluded from current assets voice, to the fact
that inventory is regarded as less liquid asset.
c) Cash ratio (CashR) – This ratio shows how capable is the entity to cover its current
liabilities with her monetary assets and this is calculated as the ratio of cash to short-term
liabilities.
III. Financial ratios of insolvency risk.
a) Fixed assets/owner’s equity ratio (FAOER) – This ratio shows the size to which fixed
assets are financed with owner’s equity.
41 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
b) Fixed assest/long term sources of finance ratio (FALTSFR) – This ratio shows the extent
to which fixed assets are financed not only with owner’s equity, but also with long-term
debt.
So , for the assessement of financial risk will be needed to be evaluated the above
financial ratios which measure different parts of the financial risk. These financial ratios are
processed by statistical software SPSS 21, which in its structure contains the treatment by
linear regression of numerical data. As the dependent variable is defined economic outcome,
namely the profit or loss of the relevant period, and as the independent variables are set
numerical values for each respective financial ratios of fiscal period.
The data will be processed using the statistical software SPSS 21 in order to release
an annually linear regression equation. In each equation will be included financial ratios with
the greatest impact on financial risk. The financial ratios are coded as above, in order to
facilitate work on the release of variable linear regression coefficients.
In addition to the successful realization of this paper are also required the provision of
secondary data. These secondary data obtained by utilizing contemporary literature, which
supports the work theoretically, in the official records of the Albanian institutions and other
sources as are needed.
4. Review of literature on financial risk.
In theory there are two concepts related to risk ; (1) first concept describes the risk of a
negative view, considering it as a threat to the loss, while (2) under the second concept, the
risk is treated as a neutral concept, so that it is not only a threat but also an opportunity
(Fabozi&Peterson, 2003).
Risk is injected into economic activity through various outflows of economic
resources, which are performed without knowing if it would follow the positive cash flows
(Kimbell, 2000). According to Smith (2012) concept of risk can be viewed as combined with
uncertainty, giving the perception that it is uncertainty that leads to the birth of risks. Events,
in which there is a lack of prediction, keep within themselves risks, although the results of
these events can be predicted with an objective probability. Results affected by the risk have
in itself the possibility of occurrence of multiple values (Valsamakis et al. - 2000). In view of
the business, uncertainty and along with it even the risk, affects the achievement of
organizational objectives (McNamme, 1998).
The risk is a possible event that could have a positive or negative impact on the
activity and life of the entity. Today risk is perceived as an event that could happen in the
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 42
future with a certain probability, and if this happens it would certainly have an impact on a
target. When risk is positive, it is called "upper-side risk" or "good risk", otherwise when its
impact is negative, it is called "the bottom side risk" or "bad risk” (Dhuci, 2011) .
Financial risk appears in various forms. On the one hand the risks appear as external
financial risks that are related to the external financial environment in which business
operates, and on the other hand they are identified as internal financial risks, where the
business itself is a source of risk.
According Sierpinska & Jachna (2007) financial risk is equivalent to the capital
structure risk, because it is considered as an additional risk borned by the need to replace debt
with equity.
In a broader sense the financial risk will be considered any fluctuations in cash flow, financial
performance and business value as a result of various factors such as interest rates, exchange
rates, price changes, etc. (Blach, 2010).
5. Data analysis.
To successfully implement this paper were taken into consideration for study the financial
statements of 50 businesses, which are included within the category of SMEs, for the period
2009-2013. From processing of financial statements as Balance Sheet, Statement of Income
and Costs and Cash Flow were processed respective ratios which measure the level of capital
structure risk, liquidity risk and the insolvency risk, which are coded as explained at
Methodology part.
These ratios, which were calculated for years 2009, 2010, 2011, 2012 and 2013 are
processed with statistical software SPSS 21 through a linear regression introduced in program
financial ratios for each respective year. The dependent variable is defined economic
outcome, which is encoded by the term "IND", and this variable takes the value “1 for profit”
and “0 for loss”, thus identified as nominal dichotomus data. While as independent variables
are defined financial ratios, which take different numerical values. The relationship between
the dependent variable (outcome) and financial risk is an inverse relationship, because the
increase in the value of the dependent variable means an increase of the result of the period, in
this case increases business profits, thus, this is translated into a low financial risk, because
the chance to have negative cash flow is low.
During the processing of the data it was concluded that not all variables were
complete, some of them had a lack of data. As a result it was used Missing Date method,
accordind to which was highlighted that only 36% of the variables are complete without lack
43 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
of data, while 64% of the variables have lack of data. Related to the cases, only 52% of cases
(businesses) included in the study had complete data, while 48% had a lack of data. Also in
connection with the lack of data on the values of the ratios is concluded that 95.52% of the
values were full of data and 4.48% were lacking, graph 1. To avoid unreal effects of results in
Missing Value Analysis, was used the condition to complete data with missing values up to
10%. The process of these data was primarily accomplished with Missing Value Analysis
method and in the second step with Multiple Imputitation method (MI).
MI is the most complex method of processing data missing. The advantage of IM is
that the final standard errors of these parameters are estimated based on (1) the standard errors
of analysis given each data set and (2) the distribution of the parameters evaluated through
data set (Gabriel et al, 2010).
Through this method the level of significance for each year of data processing are
significantly improved, making estimates of the dependent variable more reliable. From initial
data processing with the method of ENTER it is highlighted that part of the financial ratios
had no significant level (Sig> 0.05), which means that they did not significantly affect the
dependent variable. For this reason the data processing was carried Forward stepwise method
(Conditional), under which were generated only financial ratios that had low level of
significane (Sig <0.05). Data processing was done for each year.
- Year 2009
For 2009 was highlighted that from the entire financial ratios only LTDAR, ETAR, DR,
LTDER and ICR have a big impact with a low level of significance (Sig <0.05) to the
dependent variable. This resulted in the 5th step of Forward stepwise method (Conditional),
which greatly improved the significance levels and other parameters of the model. Table 1
shows the Model Sumary for 2009 and Table 2 shows the coefficients of financial ratios with
a lower level of significance and with the greatest impact on the dependent variable.
Table 1. Year 2009 - Model Summary
Mode
l
R R
Square
Adjusted R
Square
Std. Error
of the
Estimate
Change Statistics
R Square
Change
F Change df1 df2 Sig. F Change
5 .332e .110 .098 .27342 .031 12.377 1 357 .000
e. Predictors: (Constant), LTDAR2009, ETAR2009, DR2009, LTDER2009, ICR2009
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 44
Table 2. Year 2009 - Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. 95.0% Confidence Interval
for B
B Std. Error Beta Lower
Bound
Upper
Bound
5
(Constant) .398 .095 4.182 .000 .211 .585
LTDAR2009 .440 .133 .176 3.307 .001 .178 .701
ETAR2009 .447 .087 .339 5.164 .000 .277 .617
DR2009 .339 .094 .223 3.612 .000 .154 .524
LTDER2009 .057 .015 .195 3.688 .000 .027 .087
ICR2009 .001 .000 .198 3.518 .000 .001 .002
a. Dependent Variable: IND2009
Regression equation (1):
(1)
From the regression equation (1) for the 2009 it is recorded that ETAR financial ratio
has had the greatest impact on the outcome of the period (dependent variable). This means
that SMEs have tried high levels of financing their assets to equity. Since the majority part of
assets are financed with equity, SMEs have reduced their financial risk. Compared to big
businesses, Albanian SMEs have limited opportunities to provide additional financial
resources and low cost.
- Year 2010
For 2010 was highlighted that from the entire financial ratios only FALTSFR, ICR, DR,
LTDER, LTDAR, CashR and QR have a big impact with a low level significance (Sig <0.05)
to the dependent variable. This resulted in step 7 of Forward stepwise method (Conditional),
which greatly improved the levels of significance and other parameters of the model. Table 3
shows Summary Model for 2010 and Table 4 shows the coefficients of financial ratios with
lower level of significance and with the greatest impact on the dependent variable.
Table 3. Year 2010 - Model Summary
Mod
el
R R
Square
Adjusted R
Square
Std. Error
of the
Estimate
Change Statistics
R Square
Change
F
Change
df1 df2 Sig. F
Change
7 .526g .277 .264 .27340 .011 5.628 1 377 .018
g. Predictors: (Constant), FALTSFR2010, ICR2010, DR2010, LTDER2010, LTDAR2010, CashR2010, QR2010
45 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Table 4. Year 2010 - Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. 95.0% Confidence
Interval for B
B Std. Error Beta Lower
Bound
Upper Bound
7
(Constant) .689 .063 10.925 .000 .565 .813
FALTSFR2010 -.045 .010 -.227 -4.431 .000 -.065 -.025
ICR2010 .003 .001 .261 5.360 .000 .002 .004
DR2010 .331 .083 .189 3.981 .000 .167 .494
LTDER2010 -.102 .017 -.284 -6.114 .000 -.134 -.069
LTDAR2010 .574 .139 .262 4.125 .000 .300 .847
CashR2010 -.490 .125 -.333 -3.927 .000 -.735 -.245
QR2010 .128 .054 .193 2.372 .018 .022 .234
a. Dependent Variable: IND2010
The regression equation (2):
(2) From the regression equation (2) for 2010 is recorded that the financial ratio LTDAR
has had the greatest impact on the outcome of the period (dependent variable). As a result,
Albanian SMEs should aim at improving the level of long-term debt used to finance their
activities, up to the level where the weighted average cost of capital is minimized.
- Year 2011
For 2011 was highlighted that from the entire financial ratios only QR, FALTSFR, CR,
LTDER and ICR have a big impact with a low level of sinjifikance (Sig <0.05) to the
dependent variable. This resulted in step 5 of Forward Stepwise method (Conditional), where
the levels of significance and other parameters of the model were greatly improved. Table 5
shows Summary Model for 2011 and Table 6 shows the coefficients of financial ratios with
lower level of significance and with the greatest impact on the dependent variable.
Table 5. Year 2011 - Model Summary
Mode
l
R R
Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
R Square
Change
F Change df1 df2 Sig. F
Change
5 .488e .238 .229 .39566 .009 4.975 1 423 .026
e. Predictors: (Constant), QR2011, FALTSFR2011, CR2011, LTDER2011, ICR2011
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 46
Table 6. Year 2011 - Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. 95.0% Confidence
Interval for B
B Std.
Error
Beta Lower
Bound
Upper
Bound
5
(Constant) .759 .071 10.747 .000 .620 .898
QR2011 .462 .054 .381 8.557 .000 .356 .569
FALTSFR2011 -.109 .021 -.261 -5.237 .000 -.150 -.068
CR2011 -.146 .034 -.209 -4.248 .000 -.214 -.079
LTDER2011 .045 .016 .122 2.743 .006 .013 .076
ICR2011 .001 .000 .098 2.230 .026 .000 .002
a. Dependent Variable: IND2011
(3)
From the regression equation (3) for the 2011 is recorded that financial ratio of QR has had
the greatest impact on the outcome of the period (dependent variable). This means that
Albanian SMEs are trying to maintain good levels of quick ratio, increasing the level of liquid
assets and limited inventories. In this way they have been able to pay short-term obligations at
the time of their maturity by not being put into payment difficulties.
- Year 2012
For 2012 was highlighted that from the entire financial ratios only CR, LTDER, QR, ETAR,
CashR and FAOER have a big impact with a low level of sinjifikance (Sig <0.05) to the
dependent variable. This resulted in step 8 of Forward Stepwise method (Conditional), where
were greatly improved the levels of significance and other parameters of the model. Table 7
shows the Model Summary for 2012 and Table 8 shows the coefficients of financial ratios
with lower level of significance and with the greatest impact on the dependent variable.
Table 7. Year 2012 - Model Summary
Mod
el
R R
Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
R Square
Change
F
Change
df1 df2 Sig. F
Change
8 .720h .519 .511 .16030 -.001 1.107 1 388 .293
h. Predictors: (Constant), CR2012, LTDER2012, QR2012, ETAR2012, CashR2012, FAOER2012
47 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Table 8. Year 2012 - Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. 95.0% Confidence
Interval for B
B Std. Error Beta Lower
Bound
Upper
Bound
8
(Constant) 1.231 .030 41.418 .000 1.173 1.289
CR2012 -.237 .014 -.695 -16.555 .000 -.265 -.209
LTDER2012 .086 .009 .373 9.544 .000 .068 .104
QR2012 .223 .027 .478 8.336 .000 .171 .276
ETAR2012 .211 .047 .185 4.453 .000 .118 .305
CashR2012 -.250 .055 -.296 -4.517 .000 -.359 -.141
FAOER2012 -.127 .009 -.620 -14.482 .000 -.144 -.110
a. Dependent Variable: IND2012
The regression equation (4):
(4)
From the regression equation (4) for 2012 is recorded that financial ratio QR has had
the greatest impact on the outcome of the period (dependent variable). Therefore further
improvement of this financial ratio will reduce the level of financial risk. This means that
Albanian SMEs are trying to maintain good levels of quick ratio, increasing the level of liquid
assets and limiting inventories. In this way they have been able to pay short-term obligations
at the time of their maturity by not being put into payment difficulties
- Year 2013
For 2013 was highlighted that from all financial ratios only CashR, FAOER, QR, CR,
LTDAR and DR have a big impact with a low level of sinjifikance (Sig <0.05) to the
dependent variable. This resulted in step 7 of Forward Stepwise method (Conditional), which
greatly improved the levels of significance and other parameters of the model. Table 9 shows
Summary Model for 2013 and Table 10 shows the coefficients of financial ratios with lower
level of significance and with the greatest impact on the dependent variable (Sig <0.05).
Table 9. Year 2013 - Model Summary
Mod
el
R R
Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
R Square
Change
F
Change
df1 df2 Sig. F
Change
7 .651g .424 .415 .20173 .006 4.515 1 432 .034
g. Predictors: (Constant), CashR2013, FAOER2013, QR2013, CR2013, LTDAR2013, DR2013
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 48
Table 10. Viti 2013 - Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. 95.0% Confidence Interval for
B
B Std. Error Beta Lower Bound Upper Bound
7
(Constant) .792 .048 16.349 .000 .697 .887
CashR2013 -.031 .002 -.497 -13.222 .000 -.036 -.027
FAOER2013 .087 .012 .312 7.342 .000 .064 .111
QR2013 .062 .017 .163 3.641 .000 .028 .095
CR2013 .035 .011 .141 3.140 .002 .013 .057
LTDAR2013 .150 .061 .093 2.464 .014 .030 .269
DR2013 -.113 .053 -.082 -2.125 .034 -.217 -.008
a. Dependent Variable: IND2013
The regression equation (5):
(5)
From the regression equation (5) for 2013 recorded that the financial ratio LTDAR has
had the greatest impact on the outcome of the period (dependent variable). As a result,
Albanian SMEs should aim at improving the level of long-term debt used to finance their
activities, to the extent that minimize the weighted average cost of capital. Therefore further
improvement of this financial ratio will reduce the level of financial risk.
From table 11 is noted that not all financial ratios have the same impact on financial
risk. What is important is the fact that any financial ratio has not been consistently over 5
years in the study, which is shown in graph 2. Also is highlighted the fact that none of the
financial ratios do not have the same impact for each year at financial risk. It turns to
watching at least the level of significance and the respective coefficients of each financial
report. Moreover, some financial ratios have been levels of significance higher than the 0.05
level.
From the observation of table 11 and the Graph 2, we can say:
a) Long-term debt to equity ratio, which indicates the level of financial leverage in terms of
long-term debt is one of the most influential ratios on financial risk. This ratio is an integral
part of capital structure risk. Albanian SMEs should pay attention to debt financing, and
especially long-term debt. They also should target resources at low cost, which will decrease
the weighted average cost of capital.
b) Long-term debt to assets ratio, which indicates the entity's assets financed with long-term
debt also has a significant impact on the level of financial risk. This ratio is an integral part of
capital structure risk. Albanian SMEs should be more strict in the observance of the rule
where long-term assets should be financed with long-term financial sources. So, long-term
49 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
debt should be used only for financing of long-term assets, and categorically not to finance
current assets.
c) Quick ratio, which is an integral part of the liquidity risk, show the ability of SMEs liquid
after the inventory is removed from the current assets. Albanian SMEs should aim to at least
current liabilities to be entirely covered by the most liquid assets. So, the total current assets
should be greater than current liabilities, and further still current liquide assets to be at least
equal to current liabilities. SMEs must intend that this ratio should be 1 to 1, but must be
careful that very high levels of this ratio can be translated as an effective low liquidity 5.
d) Cash Report, which shows the ability of the business to pay all expenses from cash flows
generated by its operating activities. This ratio is not appeared consistently throughout the
study period received, but when it is displayed at high levels it has an impact on risk level.
Albanian SMEs should aim at optimal levels of this ratio and try to overcome all the costs that
require cash outflows generated cash from their main activity.
Table 11. Summary of coefficients of financial ratios.
Ratios 2009 2010 2011 2012 2013
DR 0.339 0.331 -0.113
LTDER 0.057 -0.102 0.045 0.086
ICR 0.001 0.003 0.001
ETAR 0.447 0.211
LTDAR 0.440 0.574 0.150
CR -0.146 -0.237 0.035
QR 0.128 0.462 0.223 0.062
CashR -0.490 -0.250 -0.031
FAOER -0.127
FALTSFR -0.045 -0.109 0.087
5 Joanna Blach, “Financial risk Identification based on the Balance Sheet Information”, Ostrava, 2010, pg 5
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 50
6. Conclusions and Recommendations
At the conclusion of this study comes that Albanian SMEs should pay great attention to the
manner of financial risk assessment through financial analysis that can be made to the
financial statements.
From this work is highlighted the fact that financial ratios, which are affecting in
financial risks do not have the same impact in each fiscal period. This results from the fact
that for each financial ratio presented in the financial risk assessment do not have the same
coefficient for each year included in the study, but their coefficients have fluctuation, even a
part of the financial ratios do not have a significant effect on financial risk for each year
included in the study.
Also during the work resulted that Albanian SMEs have a real opportunity to identify
those factors that have the greatest impact on financial risk. This is achieved through a careful
analysis of financial statements and the correct interpretation of financial ratios arising from
these financial statements.
What is recommended for AlbanianSMEs?
1) Albanian SMEs should pay great attention to the information taken from the financial
analysis of their financial statements.
2) Albanian SMEs should have a good knowledge of financial risk and its elements.
3) Albanian SMEs should understand that the financial ratios do not provide any significant
information if they are obtained in the study in separate from each other. These financial
statements should be studied together to see the connection that they have with each other and
the impact on financial risk.
4) Albanian SMEs should focus not only on a financial risk, but they must identify and
evaluate all components of financial risk.
7. References
Altman et al “The value of qualitative information in SME risk management”, Leed
University Business School, 2009.
Blach. J, :”Financial Risk Identification on the Balance Sheet Information”, Ostrava, 2010,
p2 Departamenti i Gjeografisë, Universiteti “Eqrem Çabej”, 2013
Dhuci. O, “Njohuritë bazë për riskun dhe drejtimin e tij”, Tirane, 2011.
Fabozzi F.J, Peterson P.P “Financial Management and Analysis”, 2003.
Gabriel L. Schlomer, Sheri Bauman, Noel A. Card: “Practices for Missing Data Management
in Counseling Psychology”, Journal of Counseling Psychology, 2010, Vol 57, No 1
INSTAT, “Popullsia 2001 – 2013 sipas qarqeve”, Tiranë, 2014
INSTAT, “Regjistri i Ndërmarrjeve Ekonomike 2013”, Tiranë, 2014
INSTAT, “Shqipëria në shifra 2012”, Tiranë 2013
Kimbell, R. (2000). “Failures in Risk Management”. New England Economic Review , 1-12
McNamme, D. (1998). “Business Risk Assessment” . Florida: Institute of Internal Auditors
Sierpińska M., Jachna T, “Metody podejmowania decyzji finansowych”. PWN, Warszawa,
51 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
2007
Smit, Y (2012). “A Structured Approach to Risk Management for South African SMEs”, Cape
Town.
Valsamakis A.C; Vivian R.W; Du Toit G.S. (2000). “Risk Management” -2nd Edition.
Sandton :: Heinemann and Further Education: 31-32
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 52
A Note in the Logistics, Transportation and Competitiveness
Abstract:
Logistics hold an increasingly dynamic and pivotal role in today's knowledge‐based
economies. The logistics industry is a classic example of a vital new service‐based industry.
Logistics can be defined as those services that providing the right type of services and
products in a right quality and in a right price, that providing services related to the supply
and distribution of resources. This paper attempts to search the determinant factors for the
logistic services and the transportation network and also to present the effects in the
competitiveness and the efficient of an economy.
Keywords: Logistic Services, transportation, production, competitiveness, efficiency
Dr. Dr. Aikaterini Kokkinou1,2
1 This paper has been completed under the "ΙΚΥ Fellowships of Excellence for Postgraduate Studies in Greece –
Siemens Program". 2 Post-Doctoral Researcher, Economic Geography, Regional Development and Territorial Planning Laboratory,
Department of Geography, University of the Aegean, E-mail: [email protected]
53 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
1. The Logistic Function
Logistics may be considered as the management of the flow of goods between the point of
origin and the point of consumption in order to meet the specific requirements of customers
and corporations. According to the definition of society of logistics engineers (1974):
«Logistics is the art and science if management, engineering and technical activities
concerned with requirements, design and supplying, maintaining resources to support
objectives, plans and operation», (Bley, D., 2004).
The resources managed in logistics can include the basic physical items, such as food,
materials, animals, equipment and liquids, as well as abstract items, such as time, information,
particles, and energy. The logistics of physical items usually involves the integration of
several information flows, as illustrated in the following Figure 1, (Coyle, J. J., E. J. Bardi and
C. J. Langley 2003).
The two basic pillars of logistics includes the following categories, as indicated by the
following Figure 2, (Thomas, M. F. and J. Mackey, 2006):
Material Handling
Warehousing
Inventory Security
Transportation
Packaging
Production
Logistic Services
Figure 1: The flows of the Logistic Services
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 54
More specifically, we can summarise the main characteristics of these two categories,
(Bley, D., 2004):
(a). The Business logistics includes both inbound and outbound movements. The
business logistics s a larger concept than distribution management, which does not include
activities such as forecasting and procurement. Business logistics including the coordination
of projected requirement, procurement, physical movement, and storage of components, parts,
raw materials, and semi-finished and finished goods, in order to achieve optimum demand-
service level at minimal cost.
(b). The Production logistics describes the logistic process within an industry that aims
to ensure that each machine have the right product with the right quality and quantity at a
specific time period. The production logistics has been considered as one of the main pillars
in order to achieve the capital efficiency.
This paper attempts through a literature survey to search the main pillars and the
determinant factors for the logistic services. Furthermore, it is aiming to examine the
relationship between the logistic services and the transportation network and to present the
effects in the competitiveness and the efficient level for an economy.
2. The Logistic Services and the Role of Transportation
Logistics involves an extensive set of activities dedicated to the transformation and
distribution of raw materials and goods to the final market. Today, in the era of globalisation,
the logistic services have emphasised in the competitiveness. The successful logistics affects
the global markets and international supply chain and consequently contributed substantially
towards the optimum and the efficiency level. The new technologies dominated and special
emphasis paid through the logistic services on distribution and to supply chain management
Figure 2: The Main Pillars of Logistic Services
(a). The Business Logistics
(b). The Production Logistics
55 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
and furthermore the efficiency customer response applied in the wholesale and the retail
sector. Logistics reflect the economic, social and industrial structure of the concerned
markets, but also implies other factors such as transport costs, distance, trade agreements,
exchange rates and the reciprocal economic advantages proponents get from trade, (Abel-
Maksoud, A. and M. Kawam, 2009).
The logistic services are directly affecting the economic performance and the
competitiveness level of a country. Figure 3 illustrates the links and the effects of the logistic
services, (Elhedhli, S. and J. Goffin. 2005).
The network of transportation is a branch of the logistic services. The Commercial
geography investigates the spatial characteristics of trade and transactions in terms of their
nature, causes and consequences.
Figure 3: The impact of the logistic Services
Transportation is closely related with the logistic services and also linked with the so-
called phenomenon of globalization. Efficiently distributing freight and moving people has
always been an important factor for the production and maintaining the cohesion and
competitiveness of economic systems. The economic importance and the network of
transportation were recognized very early, notably for maritime transportation since before
the industrial revolution, it was the most convenient way to move freight and passengers
around, (Bowersox, D., D. Closs and M. B. Cooper, 2009). Great commercial empires were
established with maritime transportation.
For the logistics, the innovations and the new applications of Information and
Communication Technologies (ICT) is a quite important issue. The logistic services
contribute towards a closer integration between supply and demand that enables a more
Growth in the Logistic
Services
Increasing Trade Greater Economic
Activity, Efficiency and
Competitiveness Level
Greater
Manufacturing
Production &
Outsourcing
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 56
efficient production system with fewer wastes in terms of unsold inventory. Logistics is thus a
fundamental component of efficiency improvements in a market economy, (Lawrence, F. B.,
D. F. Jennings and B. E. Reynolds, 2004).
Many manufacturing enterprises have established in-house transportation departments,
through the logistic services, in order to increase their efficiency, competitiveness and
profitability level. Their capability in offering door to door services implies that the customer
is no longer aware or necessarily concerned with how the shipment gets to its destination,
namely the modes used and the routing selected. The effectiveness of transport networks is
thus masking the importance of transportation to its users, (Terry, F. 2004).
Logistics is also closely related and affects directly the distribution costs and time. In
addition, many dimensions are added to the function of distribution. While in the past, the
distribution was a simple matter of delivering a good at a specific destination within a
reasonable time, there are also several other components that can be linked with distribution.
Figure 4 illustrates the main linkages of distribution activities, (Martin, C., 2011). According
to these lines, we can summarised the main activities:
The distribution time, it is quite important and notably set the possibility for a very
specific time for deliveries.
The reliability of distribution measured in terms of the availability and in terms of
possible adjustments of the ordered goods and the frequency at which orders are correctly
serviced in terms of quantity and time.
The quality of distribution concerns the condition of delivered goods and if the specified
quantity was delivered.
Transportation affects directly the logistic services and consequently affects the
competitiveness, the production and the growth levels. The European Commission is
responsible for developing transport policy within the European Union. The European
Commission adopted a Communication in mid-2009, titled, ‘A sustainable future for
transport: towards an integrated, technology-led and user friendly system’ (2009), and a
White paper titled ‘Roadmap to a single European transport area — towards a competitive
and resource efficient transport system’ (20110. This strategy contains several specific
initiatives to build a competitive transport system that aims to increase mobility, remove
major barriers, and stimulate growth and employment. The European Commission is
responsible for developing transport policy within the EU.
57 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
The European Commission is aiming to ensure mobility in a single European transport
area, integrating the needs of the population, environmental policy, and competitiveness. The
European policy aiming to:
complete the European internal market;
build a trans-European network as the backbone of a multimodal, sustainable transport
system capable of delivering fast, affordable and reliable transport solutions;
develop an agenda for innovation, in order to promote the development of a new generation of
sustainable transport technologies.
Figure 4: Distribution and the Logistic
Services
Distribution Time Quality of Distribution
Flexibility and Reliability of
Distribution
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 58
Table 1: Modal split of inland freight transport, 2002 & 2012 (¹)
(% of total inland km)
Table 2: Index of inland freight transport relative to GDP, 2002-12 (¹) (Index 2000 = 100)
59 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Looking for the transportation and the logistic services, we have to consider and
examine the share of freight systems through the main channels of rail, water, road and air.
Figure 5 illustrates the statistical information for share freight for China, the United States and
India, in the percentages ton-km for 2007. Currently, the annual world logistic cost is
estimated around 3.5 trillion US$. The annual logistic cost varies between 9% and 20% of the
GDP of any country. According to the global statistic, in 2000, 2003, 2004, the logistic
market accounted around 56 billion US$, 270 billion US$, 333 billion US$, respectively. The
India’s logistic services is expected to rise at around 20 % annually and to reach revenues
around 385 billion US$, by 2015.
Using the available data from Eurostat, we can see that Tables 1 shows the split of
inland freight transport for EU for the periods 2002 & 2012, whereas Table 2 shows the index
of inland freight transport relative to GDP, 2002-2012 for European Union, respectively.
Figure 6: Air freight transport, 2013, in thousand tonnes
Figure 7: Gross weight of seaborne goods handled in ports,
2013, (¹), in million tonnes.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 60
According to the statistical data derived from Eurostat Database, as illustrated in the
Figures 6 and 7, the road transport accounted for more than 90 % of inland freight transport in
Ireland, Greece, Spain, Luxembourg and Portugal in 2012. By contrast, road transport
accounted for just over one third (35.8 %) of inland freight transported in Latvia. More than
one tenth of total inland freight in Germany and Bulgaria was transported on inland
waterways in 2012, with this share increasing to just under one quarter in Romania and
Belgium, and peaking at 38.7 % in the Netherlands. The share of road transport in Estonia
increased by 22.7 percentage points, while double-digit growth rates were also recorded for
Poland (19.3 points), Slovakia (18.9 points), Slovenia (12.1 points) and Bulgaria (11.8
points). By contrast, the share of inland freight that was transported by road fell in 11 EU
Member States between 2002 and 2012, most notably in Belgium (-19.2 percentage points)
and Austria (-11.2 points). In most of the EU Member States the change in the share of freight
transported by road was accompanied by a similar and opposite change in the share
transported by rail, although Romania, Belgium and Bulgaria recorded substantial increases in
their shares of inland freight transported by inland waterways.
Regarding the air freight, we can say that around 14.4 million tonnes of air freight
(both national and international) was carried through airports within the EU-28 in 2013, this
marked a slight increase of 0.4 % when compared with 2012. Overall, the quantity of goods
transported by air in the EU-28 was 2.7 % higher in 2013 than it had been at the onset of the
financial and economic crisis in 2008. Finally, regarding the maritime ports in the EU-28
handled 3 739 million tonnes of seaborne goods in 2012, which marked a slight reduction of
0.8 % when compared with 2011. Nevertheless, in 2012, the quantity of goods transported by
sea remained almost 6 % below its pre-financial and economic crisis peak.
3. Summary Conclusions
There is a huge literature and evidence that the logistic services are closely related and
affects the levels of production, exports, the efficiency and the competitiveness and
furthermore the growth and the coherence of a country.
Today, the European strategy for transportation aiming to enhance the cohesion and
competitiveness in EU. The overall aim of the strategy, by 2050, is aiming to reduce
dependence on imported oil and to reduce carbon emissions from transport by 60 % (with
respect to the levels of 1990). To accomplish this, there are a range of different goals that
include:
61 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
The use of conventionally-fuelled cars in urban transport by 2030 and furthermore to
move 40 % use of low-carbon sustainable fuels in aviation and cutting at least 40 % of
shipping emissions by 2050;
A 50 % shift in freight journeys of more than 300 km from road to other transport modes
by 2050, all of which should contribute towards a 60 % cut in transport emissions by 2050.
One of the main pillars in the system of the logistic is the transportation network which
directly affects and determines the total efficiency. According to these lines and based on the
previous analysis, we can say that the transportation network affects directly not only the
logistic services, but also affects the competitiveness, the production and the growth levels of
a country.
4. Bibliography Abel-Maksoud, A. and M. Kawam (2009). Relationships amongst value creating variables in
an international freight forwarding and logistics firm: Testing for causality. Journal of
Applied Management Accounting Research (Winter): 63-78.
Bley, D. (2004). Improving logistics. Strategic Finance (October): 38-41.
Bowersox, D., D. Closs and M. B. Cooper, (2009). Supply Chain Logistics Management, 3rd
edition. McGraw-Hill/Irwin.
Coyle, J. J., E. J. Bardi and C. J. Langley, (2003). Management of Business Logistics: A
Supply Chain Perspective. South-Western Educational Publishing.
Elhedhli, S. and J. Goffin, (2005). Efficient production-distribution system design.
Management Science (July): 1151-1164.
European Commission (2009). A sustainable future for transport: towards an integrated,
technology-led and user friendly system, COM (2009) 279 final, Brussels.
European Commission (2011). Roadmap to a single European transport area — towards a
competitive and resource efficient transport system, COM 92011) 144 final, Brussels.
Eurostat Database. Various Data
Lawrence, F. B., D. F. Jennings and B. E. Reynolds, (2004). ERP in Distribution. South-
Western Educational Publishing.
Martin, C. (2011). Logistics and Supply Chain Management, 4th edition. FT Press.
Nyhuis P., Wiendahi Hans-Peter, (2009) Fundamentals of Production Logistics, Springer
Berlin Heidelberg 2009
Terry, F. (2004). Turning the Corner: A Reader in Contemporary Transport Policy.
Blackwell Publishing.
Thomas, M. F. and J. Mackey (2006). Supply chain management: Monitoring strategic
partnering contracts with activity-based measures. Management Accounting Quarterly
(Fall): 1-10.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 62
Investing in Emotional Economics
Abstract:
Theoretical developments of emotional intelligence are at risk by the inability of empirical
studies to keep pace with its intense surge to the forefront of the corporate sector. Due to the
paucity of empirical evidence, claims of the contributions of emotional intelligence are met
with speculation in the scientific community. Furthermore, emotional intelligence is
conceptualized and measured in a variety and often, diverging ways. Subsequent to
indications from previous literature that emotional intelligence shows promise to be linked to
the field of leadership and performance, the primary purpose of this study was to perform an
exploratory study to find out the awareness level of the concept of emotional intelligence and
the emotional intelligence level of managers. The secondary purpose was to characterize the
nature of this relationship by exploring connection between emotional intelligence and
leadership skills.
Key Words: Emotional intelligence, leadership, multiple constituents, self-awareness, self
management, social awareness and social skills
Vaibhav P. Birwatkar1
1 Vaibhav P. Birwatkar, PhD, Research Scholar, YCMOU, Tel. +91 9869059433, Email: [email protected]
63 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
1. Introduction
In the past, emotions were not considered to be an important factor in research on
organizational behavior. Most organizational theories were inclined to de-emphasize or
marginalize the exploration of emotions (Martin, Knopoff, and Beckman, 1998), and a large
number of organizational studies rested on the assumption that human beings are rational
creatures who should not rely on irrational, unproductive emotions (Fineman, 1993; Hartel,
Zerbe, and Ashkanasy, 2005).
However, more recently researchers have realized that organizational behavior cannot
be sufficiently explained without integrating the critical role of emotions. Modern theories of
emotions regard them as organized responses to an internal or external event that can direct
cognitive abilities adaptively (Damasio, 1999; Kalat and Shiota, 2007; Putnam and Mumby,
1993; Strongman, 2003; Van Maanen and Kunda, 1989). Therefore, researchers are
increasingly conducting studies on emotions to provide a more comprehensive understanding
of human behavior in organizational settings.
Developed in the field of psychology, the concept of emotional intelligence recognizes
the limitations of traditional intelligence and suggests that individuals differ in the skill of
processing affective information (Salovey and Mayor, 1990). This construct has a meaningful
implication for managers because emotional intelligence can be a factor that leads to
differences in work outcomes among organizations as well as individuals.
A more comprehensive understanding of emotions in the workplace can be gained by
integrating emotional intelligence and leadership in research. Emotional intelligence can
explain how individuals can differ in their ability to recognize and regulate emotions and how
emotional regulation and expression in the workplace affects individual or organizational
well-being.
Therefore, this study intends to investigate whether emotional intelligence has an
effect on performance or other desirable outcomes, it also examines the dimensions of
leadership to ascertain whether the work requires various skills of emotional intelligence.
2. Emotional Intelligence
Conventional wisdom tells us that IQ is the best of a youth success in life (Gorg, 2000).
Goleman (1996) asserted that most IQ contributes about 20 percent to the factor that
determine success leaving 80 percent to other factors. These other factors make up what is
called emotional intelligence. It consists of affective abilities such as getting along with others
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 64
(cooperation, resolving conflict), self–motivation, persistence, empathizing (expressing
feelings, appreciating diversity), controlling impulses and regulating one's mood.
Our society faces a number of economic, health-related, ethnic-racial, cultural,
geopolitical and environmental challenges. Most agree that solutions to society's most vexing
problems will require citizens to possess not only well-developed intellectual abilities, but
also equally impressive social and emotional skills. It is this recognition of the importance of
proficient interpersonal skills and the ability to get along effectively with others that has
helped fuel the growing interest in the concept of emotional intelligence (Steven, 2001).
A second reason for the growing interest in the concept of emotional intelligence has
to do with recent theories embracing more broad conceptualizations of intelligence (Gardner,
1983; Sternberg, 1988). Over the past few decades, most theories of intelligence (Binet and
Simon, 1916; Thurstone, 1938; Wechsler, 1958; Spearman, 1923) have posited the authority
of one general ability, g, at the apex of a hierarchical model (Brody, 1992). This general
factor, g, represents what many psychometric researchers feel is the primary mental ability,
underlying what all different kinds of intelligence tests have in common (Keith, 1994).
Emotional intelligence is the innate potential to feel, use, communicate, recognize,
remember, learn from, manage, understand and explain emotions. The word 'describe' also
includes describing emotions to oneself, in order to better understand them, etc., and not
merely communication or explanation of emotions to others. The description of an emotion
really comprises the use of metaphors and analogies, including comparison with other, similar
emotions, and all manner of other analogous things, in order to better incorporate an emotion
into one's verbal and intellectual understanding, so that it can be really focused on as a matter
of concentration (Goleman, 2003).
The description of feelings using metaphors form part of the basis of human language.
It helps refine our understanding of feelings by comparing feelings to concrete things and
already extant mental concepts. EQ is an abbreviation for "emotional quotient," the measure
of emotional intelligence, and it means being smart with feelings. Some people just know how
to get along with others; some people are more self-confident, and others are great at inspiring
others. All these come from a set of skills called emotional intelligence, or EQ. Some other
EQ skills are identifying and changing emotions, motivating you, and empathizing with
another person. Emotional intelligence is a set of measurable and learnable skills essential for
success in school, work, and life. (Kathy, 2001).
Successively more specific mental abilities constitute the lower strata or levels of
generality, depending upon the particular theory. Fluid and crystallized intelligence is one
65 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
example (Horn, 1976) and verbal-comprehension and nonverbal-perceptual-spatial abilities
are another (Wechsler, 1991). These traditional theories of intelligence, although quite varied,
share a small number of consensual attributes. They all agree that intelligence is goal-directed
mental activity that is marked by efficient problem solving, critical thinking, and effective
abstract reasoning (Sternberg, 1986).
Emotional intelligence is very important in every educational, sociological,
economical, and organizations, because businesses today continually need to undergo rapid
change to maintain their competitive edge. That rapid change requires an organization that has
employees and leaders who are adaptive, work effectively, constantly improve systems and
processes, are customer focused, and who share the need to make a profit (Lisa, 2007). The
continuous environment of insurgence and change has been coined the permanent white
waters of modern life (Vaill, 1996). A key element in driving and managing these white
waters in an organization is believed by many to be leadership. Great leaders move us and
they ignite our passion and inspire the best in us. When we try to explain why they are so
effective, we speak of strategy, vision, or powerful ideas. But the reality is much more primal
as great leadership works through the emotions (Goleman, Boyatzis, and McKee, 2002).
Primarily two perspectives of emotional intelligence have emerged over the past
decade – one that is based more on a mixed perspective, which defines emotional intelligence
largely through personality characteristics; the second perspective is an ability perspective,
which defines emotional intelligence as a set of distinct abilities. Since there has been more
research in the area of personality characteristics and leadership. The ability model of
emotional intelligence is framed as a type of intelligence, hence it is intended to co-exist with,
supplement, and clarify existing models of leadership and not replace them. Though the
model is too new to have extensive data in support of its predictive validity, it is believed that
it will make significant contributions to our understanding of leadership (Mayer, Caruso, and
Salovey, 2002). Leadership, which embraces the emotional side of directing organizations,
thrusts life and meaning into management structures, bringing them to full life (Barach and
Eckhardt, 2007).
3. Emotional Intelligence in Leaders
Emotional intelligence is a person’s ability to recognize personnel feelings and those of others
and to manage emotions within themselves and in their relationships with others (Goleman,
1998). Emotional intelligence includes four competencies (1) Self-awareness is the ability to
accurately perceive one’s emotions and remain aware of them as they happen, including the
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 66
ability to manage one’s response to specific situations and people (2) Self-management is the
ability to be aware of one’s emotions and have the flexibility to positively direct one’s
behavior in response to those emotions, to manage emotional reactions in all situations and
with all people (3) Social awareness is the ability to accurately identify the emotions of other
people and thus understand the effects of those emotions, i.e., to understand what other people
are thinking and feeling even though the perceiver does not feel the same way (4)
Relationship management is the ability to use awareness of one’s own emotions and those of
others to successfully manage interactions, i.e., to provide clear communication and
effectively handle conflict (Bradberry and Greaves, 2003).
Over the past several years, numerous studies in the business sector have focused on
the effect of emotional intelligence on leadership. The executive search firm Egon Zehnder
International analyzed 515 senior executives and found that those who were primarily strong
in emotional intelligence were more likely to succeed than those who were stronger in either
relevant previous experience or IQ (Cherniss, 2003). AT&T leaders who had high emotional
intelligence were 20 percent more productive than those with low emotional intelligence
(Bradberry and Greaves, 2003). Cavallo and Brienza (2003) conducted a study involving 358
managers across the Johnson & Johnson – Consumer & Personal Care Group globally to
determine whether any specific leadership competencies were significantly different between
high performers and average performers. They found that the high performers had
significantly more emotional competencies than did low performers.
Emotional intelligence significantly influences the performance of a leader (Cherniss
and Goleman, 2001). A leader who has a high level of emotional intelligence will have a
greater effect on an organization than a leader with a low level of emotional intelligence
(Cherniss, 2003). Organizations are realizing that emotional intelligence is an essential part of
an organization’s management process; and, with the current emphasis on team building and
adapting to change, emotional intelligence becomes more critical (Goleman, 1998). If leaders
expect to guide their organizations in the right directions, they need to be able to deal
effectively with emotions. Great leaders have the ability to work through emotions (Goleman,
Boyatzis, and McKee, 2002).
Goleman’s (1995, 1998) studies of emotional intelligence were specifically related to
the domain of work performance. He examined how emotional intelligence affected
individuals and leaders in the business world. Over the past decade a significant case has been
made for considering emotional intelligence among leaders within businesses (Bradberry, and
67 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Greaves 2004; Cherniss, 2003; Goleman, 1998). To date, however, little research has been
conducted on emotional intelligence and its effects on leadership.
Emotional intelligence may be an important factor in the realm of leadership.
Managers may have an additional tool to help them reach high levels of performance. This
study is intended to address that possibility.
4. Models of Emotional Intelligence
Many tests of emotional intelligence (e.g., Bar-On EQ-i, 1997; MSCEIT V2.0; Mayer,
Salovey, Caruso and Sitarenios, 2003) have been marketed and are currently being used in
personnel selection contexts (Murphy, 2006). It is therefore important to understand how
responses on emotional intelligence tests can be distorted in high-stakes testing (Conte, 2005).
However, there is a controversy within the field of emotional intelligence over proper
conceptualizations of the construct. One conceptualization, known as the ability model
(Salovey and Mayer, 1990), considers emotional intelligence as a type of intelligence and, as
such, it should be moderately related to GMA. This has been consistently demonstrated (e.g.,
Brackett and Mayer, 2003; Schulte, Ree and Caretta, 2004), and Van Rooy, Viswesvaran, and
Pluta (2005) found a corrected correlation of .34 between the two constructs in a meta-
analytic review. These findings suggest that ability-based emotional intelligence shares the
same positive manifold as other cognitive abilities do with GMA (Brody, 2004). Because of
this overlap, ability-based measures of emotional intelligence should not be overly susceptible
to faking attempts (e.g., Jensen, 1998).
A competing conceptualization of emotional intelligence has been commonly referred
to as a mixed model. In addition to incorporating components of the ability model, the mixed
model of emotional intelligence includes other non-cognitive aspects such as personality,
motivation and empathy. Van Rooy and colleagues (2005) reported a much smaller corrected
correlation of .13 between mixed model emotional intelligence and GMA, suggesting greater
construct divergence than the ability model. Given that they are relatively orthogonal
constructs, mixed model emotional intelligence may have an appeal in selection context (Van
Rooy, Dilchert, Viswesvaran, and Ones, 2006) as a predictor that could potentially
supplement GMA as an assessment tool (Schmidt and Hunter, 1998).
5. Research Problem
Researchers over the past decade have shown that in the business world a positive correlation
exists between effective leaders and emotional intelligence (Caruso, and Salovey, 2004;
Bradberry, and Greaves, 2003, Singh, 2003, Goleman, 1998). Individuals high in emotional
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 68
intelligence tend to perform at a higher level than their counterparts with low emotional
intelligence, and those who tend to improve or work on their emotional intelligence
outperform cohorts who do not (Bradberry, and Greaves, 2003).
The fiscal bottom line in business tends to be served better by those leaders who
demonstrate high levels of emotional intelligence (Cherniss, 2003). Businesses are becoming
more cognizant of the importance of encouraging and developing emotional intelligence skills
within the workplace (Singh, 2003). In the realm of successful leadership, though, little
attention has been given to emotional intelligence. To date little research has been conducted
in the area of emotional intelligence, leadership and stakeholders. Emotional intelligence
effects leadership performance in the business sector (Goleman, 1998). This study undertook
to examine the level of awareness level of the concept of emotional intelligence among
managers and the effects of emotional intelligence on leadership performance.
6. The Study
The sample was delimited to managers from various manufacturing as well as service sectors
including equal representation from domestic as well as MNC companies. The study was
further delimited to managers of only Mumbai corporate sector. The population consists of all
the managers of the various industries in the Mumbai corporate sector. This includes
managers of both domestic as well as MNC companies.
The sample of the study comprised of 780 top management level managers from
manufacturing and service companies of the Indian corporate sector. A total of 52 companies
were selected as the final sampling unit. Out of these 52 companies, 26 companies were of
manufacturing type and 26 companies were belonging to the service sector. Out of the 26
companies of manufacturing 13 companies were domestic and rest 13 companies were
MNC’s and from each company 15 managers were selected.
Emotional intelligence levels and competencies will be assessed through a pre-
designed Questionnaire. The areas covered by this questionnaire can be briefly summarized as
follows:
1. The first part was related to finding the awareness level regarding emotional intelligence
as well as its related competencies.
2. The second part consisted of a 5 point rating scale of 20 questions related to the four
clusters of emotional intelligence namely self-awareness, self management, social
awareness and social skills.
69 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
3. The Part 3 consists of a 5 point rating scale consisting of questions related to leadership
whether managers used emotional intelligence to enhance their leadership skills.
4. The Part 4 consists of a 4 point rating scale consisting of questions related multiple
constituents and how far the managers recognize emotions of multiple constituents and
attend them in designing organization functions.
A Two (2) hour workshop on emotional intelligence was conducted in each company
and the data was collected and analyzed quantitatively for each objective. In the present study
both descriptive analysis as well as inferential analysis were used. The data was analyzed in
terms of frequency and percentage. Mean and SD were computed and 't' Test and ANOVA
were used as part of inferential data analysis.
Awareness level of emotional intelligence amongst managers
Informed Awareness - Unprompted awareness
The study proved that that nearly all managers of both manufacturing as well as service did
not know as they were not able to name the component with no prompting.
Prompted awareness - Manufacturing – Service comparison
Manufacturing Service
Emotional Self Awareness 4% 5%
Accurate Self Assessment 2% 2%
Self Confidence 10% 9%
Self Control 8% 7%
Trustworthiness 6% 6%
Conscientiousness 3% 3%
Adaptability 5% 6%
Achievement Orientation 3% 3%
Initiative 7% 6%
Empathy 3% 5%
Organizational Awareness 5% 4%
Service Orientation 3% 3%
Developing Others 6% 5%
Leadership 8% 8%
Influence 4% 4%
Communication 8% 7%
Change Catalyst 2% 2%
Conflict management 3% 4%
Building Bonds 3% 4%
Team work & Collaboration 8% 8%
Total 100% 100%
The levels of prompted awareness varied considerably by the specific sub-competency
concerned. In particular, awareness among the sample of self-confidence competency was the
most widespread in both manufacturing and service sector of the 20 sub-competencies
covered, and awareness of accurate self-assessment and change catalyst was least widespread.
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 70
Emotional intelligence of Managers in Manufacturing and Service sector (both Domestic
and MNC)
Manufacturing
N=26 companies
390 managers
Service
N=26 companies
390 managers
Mean SD Mean SD 't' value 0.01 0.5
Self-Awareness 8.93 1.6 8.78 1.69 1.26 NS NS
Self-Management 16.16 2.9 16.04 2.91 0.58 NS NS
Social Awareness 8.12 2.52 8.21 2.09 0.54 NS NS
Social Skills 22.84 4.6 22.57 4.96 0.79 NS NS
Total EI 56.05 8.78 55.6 8.62 0.72 NS NS
Leadership skills – Managers in Manufacturing and Service sector (both Domestic and
MNC)
Multiple Constituents – Emotional intelligence of Managers in Manufacturing and
Service sector (both Domestic and MNC)
Manufacturing
N= 26 companies
(390 managers)
Service
N= 26 companies
(390 managers)
MEAN SD MEAN SD ‘t’ value .01 .05
Employees 13.66 2.40 14.03 1.78 2.49 NS S
Customers 10.78 1.76 10.72 1.67 0.50 NS NS
Investors 7.97 1.68 8.12 1.52 1.30 NS NS
Competitors 7.66 2.69 7.55 1.89 0.66 NS NS
Total 40.07 6.52 40.42 5.31 0.83 NS NS
Experience wise comparison using ANOVA
Sum of
Squares
df Mean
Square
F Sig.
Self-Awareness Between Groups 2.269 2 1.135 .412 .662
Within Groups 2077.362 755 2.751
Total 2079.631 757
Self-Management Between Groups 14.249 2 7.124 .846 .430
Within Groups 6359.515 755 8.423
Total 6373.764 757
Social Awareness Between Groups 5.039 2 2.519 .464 .629
Within Groups 4100.412 755 5.431
Total 4105.451 757
Social Skills Between Groups 192.953 2 96.477 4.213 .015
Within Groups 17290.251 755 22.901
Total 17483.204 757
Total EI Between Groups 345.733 2 172.866 2.279 .103
Within Groups 57279.634 755 75.867
Total 57625.367 757
Education wise comparison using ANOVA
Manufacturing
N=26 companies
390 managers
Service
N=26 companies
390 managers
Mean SD Mean SD 't' value 0.01 0.5
Leadership skills 13.57 4.18 13.94 3.51 1.33 NS NS
71 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Sum of
Squares
df Mean
Square
F Sig.
Self-Awareness Between Groups 20.594 2 10.297 3.776 .023
Within Groups 2059.037 755 2.727
Total 2079.631 757
Self-Management Between Groups 32.498 2 16.249 1.935 .145
Within Groups 6341.266 755 8.399
Total 6373.764 757
Social Awareness Between Groups 25.142 2 12.571 2.326 .098
Within Groups 4080.309 755 5.404
Total 4105.451 757
Social Skills Between Groups 597.716 2 298.858 13.363 .000
Within Groups 16885.489 755 22.365
Total 17483.204 757
Total EI Between Groups 1472.253 2 736.127 9.898 .000
Within Groups 56153.113 755 74.375
Total 57625.367 757
Age wise comparison using ANOVA
Sum of
Squares
df Mean
Square
F Sig.
Self-Awareness Between Groups 10.358 3 3.453 1.258 .288
Within Groups 2069.272 754 2.744
Total 2079.631 757
Self-Management Between Groups 93.319 3 31.106 3.734 .011
Within Groups 6280.445 754 8.330
Total 6373.764 757
Social Awareness Between Groups 3.766 3 1.255 .231 .875
Within Groups 4101.685 754 5.440
Total 4105.451 757
Social Skills Between Groups 191.358 3 63.786 2.781 .040
Within Groups 17291.847 754 22.933
Total 17483.204 757
Total EI Between Groups 680.263 3 226.754 3.002 .030
Within Groups 56945.103 754 75.524
Total 57625.367 757
Gender wise comparison
Gender N Mean Std.
Deviation
Std.
Error
Mean
‘t’
value
.05 .01
Self-Awareness Male 594 8.89 1.640 .067 0.424 NS NS
Female 164 8.70 1.717 .134
Self-Management Male 594 16.10 2.993 .123 0.141 NS NS
Female 164 16.02 2.550 .199
Social Awareness Male 594 8.18 2.128 .087 0.249 NS NS
Female 164 8.04 2.949 .230
Social Skills Male 594 22.82 4.902 .201 0.907 NS NS
Female 164 22.15 4.416 .345
Total EI Male 594 55.98 8.939 .367 1.090 NS NS
Female 164 54.90 7.868 .614
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 72
7. Findings
Amongst the sample a strong correlation was found overall and between each of the four
emotional intelligence abilities (self-awareness; self-management; social-awareness; and
social skills) and leadership skills, emotions of multiple constituents were recognized in
designing organization policies.
In essence what the study revealed was that most of the managers in the
manufacturing sector and in the service sector not very well informed about the concept of
emotional intelligence indicating the lack of awareness regarding emotional intelligence.
Managers in the service sector were more informed regarding the concept of emotional
intelligence in comparison to manufacturing sector. The managers of both manufacturing as
well as service were not able to name the components of emotional intelligence without
prompting. Since scores were mostly below average, efforts to improve emotional intelligence
among managers has to be implemented. Managers were fairly aware of the emotional
intelligence however they are not capable of expressing or describing the term emotional
intelligence in a verbalized way or be unable to even know that they are using it as they use.
The reason behind this could be that managers are not skilled at expressing themselves and
their beliefs or opinions.
The second objective in the present study concerned the measurement of managers
emotional intelligence level for both manufacturing as well as service sector including
domestic and MNC company managers. Emotional Intelligence concerns the degree to which
you are able to repair negative moods and emotions, and maintain beneficial positive moods
and emotions both within yourself and others at work. Proficiency in this area is typically
reflected in congenial dispositions such as genuineness, warmth, optimism and charisma. The
results indicate mostly an average emotional intelligence among managers. Emotional
intelligence levels for managers of both manufacturing as well as service companies did not
show much difference with most of the Managers in the manufacturing as well as service
sector showing to have average level of emotional intelligence. Self-awareness, self-
management, social skills and social management all were in the average category. It may be
that managers in both types of organizations possess similar skills that prepare them for their
managership positions. That is, perhaps the manager’s share similar experiences overall and
those experiences result in similar levels of emotional intelligence.
The overall leadership skills for manufacturing sector as well as service sector (both
domestic as well as MNC) was found to be moderate with most managers in the average
range closely followed by high range. Differences in emotional intelligence scores among
73 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
managers by type of organization showed no significant differences. Scores indicated that the
managers of these organizations were average, indicating adequate emotional capacity. It may
be that managers in these companies of both the sectors possess similar skills that prepare
them for their managership positions. That is, perhaps the manager's share similar experiences
overall and those experiences result in similar levels of emotional intelligence.
Managers were far below the satisfactory range as far as considering emotions of
multiple constituents in framing organization policies was the concern. To be adept at an
emotional competence like customer service or management of other multiple constituents
requires an underlying ability in emotional intelligence fundamentals, specifically, social
awareness and relationship management. However, emotional competencies are learned
abilities: having social awareness or skill at managing relationship does not guarantee that one
has mastered the additional learning required to handle a customer adeptly or to resolve a
conflict. A person may be highly empathic yet poor at handling customers if he or she has not
learned competence in customer service. Although emotional intelligence determines the
potential for learning the practical skills that underlie the four emotional intelligence clusters,
the emotional competence shows how much of that potential one has realized by learning and
mastering skills and translating intelligence into on-the-job capabilities.
For self-awareness, self-management, social awareness and total emotional
intelligence there was no significant difference in the mean scores of managers having
different number of years of experience. However for social skills, the difference was
significant. Low emotional intelligence scores in terms of social skills can be attributed to
problems with interpersonal relationships as well as difficulty changing or adapting. As the
number of years of service progress, the tendency to become adjustment in particular mould
becomes intense with the result that one tries to shun any external changes which might prove
to be a hurdle in routine way of working to which he is accustomed.
As far as self-awareness, self-management and social awareness is there is no
significant difference in the mean scores of managers having different educational
qualification. For both social skills as well as total emotional intelligence there exists a
difference in the mean scores of managers with different educational qualification. Improving
managers' emotional intelligence would involve education and specific job-related training.
Managers should also be encouraged to enhance their skills through continuous self-learning.
As far as self-awareness, social skills, social awareness and total emotional
intelligence are concerned there is no significant difference in the mean scores of managers
belonging to different age groups. One possible explanation could be that emotional
Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 74
intelligence is not a function of age and with the advancing years it does not get strengthened.
Emotions are individual and their expression and manifestation depend upon individual’s
profile. Managers belonging to different age groups may not remarkably differ in their
emotional intelligence competencies. Emotions can be trained probably with experience and
exposure.
There is no significant difference in the mean scores of emotional intelligence gender
wise with respect to self-awareness, self-management, social awareness, social skills as well
as total emotional intelligence. The findings indicate that women score somewhat higher on
measures of emotional intelligence than men. Extensive reviews of the data on leadership and
gender indicate that women leaders are devalued in comparison to their male counterparts, but
especially when women employ a stereotypical male leadership style, namely an autocratic as
opposed to democratic, style. If emotional intelligence plays a role in effective leadership, and
if women, as a group, are higher in emotional intelligence than are men, then we need to
realize that women possess a critical leadership skill.
8. Implications of the Study
The implication of this study is that by using their own emotional competencies managers can
encourage subordinates to enhance their problem solving strategy. The perception of
subordinates of their supervisors' use of these skills may have compound positive impact on
the subordinates' problem solving strategy of managing conflict and job performance.
Therefore, the challenge for a contemporary organization is to enhance the emotional
intelligence of their managers. Improving managers' emotional intelligence would involve
education and specific job-related training. Managers should also be encouraged to enhance
their skills through continuous self-learning. Organizations should provide appropriate
reinforcements for learning and improving employees' essential emotional competencies
needed for specific jobs education and training may be of limited value when it comes to
improving supervisors' emotional intelligence. Organizations may have to adapt the policy of
recruiting managers with vision and charisma who are likely to be high on emotional
intelligence.
9. Conclusion
The idea of emotional intelligence, and the findings of this research which supports it,
indicates that organizations which select managers on the basis of IQ and other "traditional"
measures will not develop the talent and capabilities which will deliver their future success. It
75 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
is clear that managers with high levels of emotional intelligence have greater career success,
foster stronger personal relations, have more effective managership skills, and are healthier
than those with low emotional intelligence. Further, they are able to monitor and evaluate
others' feelings empathize with others and excel in interpersonal skills It is recommended that
organizations seek out managers with high emotional intelligence and seek ways to enhance
the EQ of current managers. Because this component of managerial success can be developed,
it is also suggested that firms develop programs that enhance the EQ of their managers. This
will enable them to motivate themselves and their subordinates and to work in more creative,
more fulfilled, and more enthusiastic ways.
Results of this study may also be used by organizations for human resource
development practices and assigning the work profile. If managers are aware of their strengths
and weaknesses in relation to emotional intelligence subcomponents, then they may be
persuaded to participate in management development programs that help them strengthen
areas of weakness. Managers may also use the results of this study to further their
understanding of how to enhance their emotional intelligence in relation to managership and
organizational activities. Activities that promote active involvement and a sense of
commitment will develop a sense of dependability and collaboration among the membership.
An important area of future research concerns carefully designing and evaluating the
effects of intervention on supervisory emotional intelligence in enhancing positive conflict
management styles and effectiveness. Additional research in this field could be conducted in
an attempt to correlate managerial practices and organizational climate with concepts of
emotional intelligence.
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Van Rooy, D.L., Viswesvaran, C., & Pluta, P. (2005). An examination of construct validity:
What is this thing called emotional intelligence? Human Performance, 18, 445-462.
Van Rooy, D.L., Dilchert, S., Viswesvaran, C., & Ones, D.S. (2006). Multiplying
Intelligences: Are General, Emotional, and Practical Intelligences Equal? In K. R.
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Wechsler, D. (1958). The measurement and appraisal of adult intelligence (4th Ed.).
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Book Reviews Book Presentations
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81 Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015
Instructions to Authors
Journal of Regional & Socio-Economic Issues (Print) ISSN 2049-1395
Journal of Regional & Socio-Economic Issues (Online) ISSN 2049-1409
Aims of the Journal: Journal of Regional Socio-Economic Issues (JRSEI) is an international multidisciplinary
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Journal of Regional Socio-Economic Issues, Volume 5, Issue 1, January 2015 82
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